It started with a great idea: A product or service on which you're convinced a successful entrepreneurial venture can be built. Now comes the tough partactually planning and launching the business.
Along with the entrepreneurial spark, nurturing a startup business from concept to commercial viability requires painstaking planning and a methodical approach to executing that plan. Here are some steps to consider for putting your new business on the road to prosperity.
Get professional advice. Entrepreneurs who fund a startup largely from their own pockets will find their business and personal finances inextricably linked.
"Thus, it's vital early in the planning process to consult a tax/financial expert who can help sort through issues on both sides," says Financial Planning Association member Kevin M. Reardon, a certified financial planner.
Set a budget. Clearly understanding your new company's immediate and long-term cash needs is "critical," says Reardon, noting that business owners frequently underestimate startup costs. His advice is to tally up expected startup costs, than add 30 percent for a realistic number.
Prepare your personal finances. Once resolved to start a business, start paring down your personal debt. In a tight lending environment, having lower personal debt should increase access to business financing. Also, start building up your personal emergency fund. Having enough cash set aside to cover at least six months' worth of basic living expenses is especially crucial for new business owners, says Reardon, since many businesses aren't profitable at the outset.
Fill the funding void. If you're not planning to fund your start-up exclusively out of pocket, where will the additional money come from? A home equity loan or line of credit? A loan from a family member or bank? Since startup business loans from banks are tougher to secure these days, it's worth investigating special lending programs from the likes of the U.S. Small Business Administration and other federal, state, and local agencies.
Decide on a legal structure. Will your company be structured as an S or C corporation, limited liability partnership (LLP) or limited liability company (LLC)? Avoid sole proprietorships and general partnerships due to the unlimited liability associated with these entities. Given all the tax and financial considerations that come into play, it's worth consulting with an attorney and perhaps a tax expert for help answering that question.
The insurance issue. "Besides the obvious health insurance, long-term disability insurance is also a must," says Reardon. With health insurance, he recommends new business owners hedge their bets by taking the COBRA option from their previous employer's plan for as long as possible (18 months maximum) before adopting their own plan.
Retirement plan and other benefits. From a self-employed 401(k) to a SEP (Simplified Employee Pension) IRA and beyond, the options for structuring a retirement plan for yourself and your employeesif you have, or plan to have, anyare numerous. Again, given the tax ramifications, it's worth talking to a tax expert before you decide on one.
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