Choosing to start a business is an exciting decision, but translating that excitement into longer-term planning can be hard. While it’s tempting to prioritize launching your business over other financial considerations, planning is essential for a good start. Making careful decisions from the outset will help you achieve your business goals with less stress and fewer mistakes.
You may feel like the list of decisions you need to make is endless, but don’t panic. Create a list and work through them carefully, ticking them off as you go. With a bit of determination, you will quickly see the list getting shorter as your confidence grows.
As you navigate complex decisions, don’t hesitate to ask for help from financial planners and other business owners. As you learn more from others, you can take advantage of what works and avoid riskier financial decisions.
Here are four pieces of business advice you can consider right now as you reach for your dreams.
1. Plan for the Finish Line
Being a new business owner is like landing your first job out of college. All of your focus is on getting started and finding success. While looking up, you may forget to look ahead — to retirement.
Many self-employed business owners invest all their money in the business itself rather than stowing some away for retirement. Failing to save early can cause your savings to fall behind schedule and force you to delay retirement.
Once you become your own employer, take advantage of the option to establish a solo 401(k). You can save on those expensive fees you used to pay someone else to manage your retirement investments. You can even contribute more to your self-directed 401(k) than you could under an employer’s plan.
“I wish I had invested more money in my business and less in my retirement,” said no one, ever. Be as passionate about what happens after you build your company as you are about fostering its growth. The finish line is always nearer than you think, so begin preparing for it from the outset.
2. Pay Yourself First
Putting money into that solo 401(k) is one way of paying yourself first. Another is to pay yourself for running your business just as an employer you worked for would have to do. Although this sounds like a no-brainer, the fact is that many business owners fail to compensate themselves.
How you pay yourself will depend on what type of business you form. Sole proprietorships, partnerships, limited liability companies and S- and C-corporations handle pay differently. You may take an owner’s draw, share profits, or pay yourself a salary, to name a few.
Besides being able to count on a paycheck to cover your personal living expenses, compensation has other advantages. Labor is usually the biggest expense a company incurs and it is tax-deductible, so you’ll want that tax deduction. It will also provide a far more accurate picture of how your business is doing.
Everyone deserves compensation for the work they do, even if you’re working for yourself. Don’t sell yourself short. You’ll need that money to pay your bills now and invest in your retirement.
3. Choose the Right Business Structure
Before you decide what type of business structure you want to form, research the pros and cons of every type. Consider multiple variables, such as what products or services you’re selling and whether you have employees, partners, or shareholders.
Another key consideration is tax liabilities. For example, if you’re a sole proprietor or LLC, what the business nets is your income. That means self-employment taxes, such as contributions to Social Security and Medicare, are calculated from that amount. Alternatively, other corporate structures separate the company’s net income from personal income. You are taxed only on what you pay yourself, not on the company’s profits.
Your structure will also determine whether your personal assets are at risk and how you can protect them. Consulting with a small business advisor, accountant, or a lender about your business structure before you launch is smart. It’s important to know which structure is most lucrative or exposes you to less personal risk.
4. Care About Your Customers
So much about starting a new business is about your dreams. Although accomplishing your dreams is a great reason to become an entrepreneur, you cannot be successful without customers. That’s why every business decision you make should consider who wants to buy your products and services.
Planning for your business should begin and end with this group. Your company needs to be answering a need that isn’t being met adequately in the marketplace. Otherwise, there may not be enough room for you to be successful.
Research the market exhaustively. Be specific in your business plan about which needs aren’t being satisfied and how your company will meet them. Don’t guess. Rather, rely on objective and subjective data to shape your company.
The decision to open a business is about your dreams. How you make your dreams into a business that delivers its products profitably, however, is about consumers. Keep your eye on your consumer base and watch for shifts in trends and tastes, adapting strategically as needed.
Do Your Homework
Successful companies don’t just happen. They are the culmination of ideas, innovation, research, skill, patience, and sheer determination. Every decision is an opportunity for triumph or failure.
As you make your business plan, be thorough, thoughtful, and adaptable. Make choices that keep both you and your customers in mind, both now and in the future. As you acquire new information, revisit your strategies and ask if and how you need to change your approach.
And don’t forget to seek out sound advice every step of the way. You’re not alone in this journey, and seeking out expert advice will better ensure your long-term success.