Are you thinking about starting a business but worried about your personal finances?
In 2016, a record 80 new companies were launched every hour in the UK – but, as a result of poor financial management and insufficient funding, four in every ten SMEs don’t make it beyond their first five years. When it comes to starting up, one thing’s clear: cash flow is the ultimate problem plaguing new businesses.
From figuring out your retirement plan to consolidating any non-business related debts, taking care of your personal finances is an essential first step towards helping your new startup get off the ground and stay there. Today, the finance specialists from Solution Loans are weighing in on why aspiring entrepreneurs should ensure their own finances are in order before setting up their new business.
Borrowing will be easier
Launching a new business comes with a multitude of expenses – some of which you may not have considered – making it crucial to start from a position of knowledge and stability. Whether you’re considering a business loan or exploring other means of borrowing money, being fully aware of your own financial situation before you move forward will make the process of finding funding for your business that much easier.
Agencies like Equifax and Experian will allow you to view your credit report for free, giving you an opportunity to challenge any inaccuracies with the potential to negatively impact on your credit rating. Once you’re aware of what’s contributing to your credit score, you’ll be able to review the available options and make a decision that best suits your circumstances. With everything from store cards and mobile phone contracts to car finance and overdrafts affecting your credit score, you may be able to improve your rating by consolidating your debts – but don’t forget to research interest rates and borrowing periods before you go ahead with this.
Related: What to do when the bank says no
Stability equals longevity
A lack of financial stability can be hugely detrimental to a new business, so it pays to have clear plans put in place before you launch. One of the many benefits of working for someone else is a pension plan – and this is something that’s often sacrificed as new business owners pour any spare cash into securing their startup.
If this is your first business venture, it’s unlikely that you’ll have given much thought to your retirement plan – but allowing this to fall by the wayside could leave you in a difficult position in the future. There are a number of websites designed to help small businesses figure out their pension plans – so set some aside time to research the most advantageous options available to you and your employees, and start preparing for retirement as soon as possible.
Budgeting will pay dividends
Many of us consider ourselves to be good at managing money but, in reality, we may be frittering away a large proportion of our income without even realising it. Taking stock of your financial situation will give you a more realistic understanding of your outgoings and put you in better stead to manage your business’s finances once your company is up and running.
From managing household bills to sticking to your social budget, learning to live within your means will help you to cultivate a sense of self-discipline and teach you how to recognise what should take precedence when it comes to your company spending. Whether it’s paying employees on time or financing your next social media campaign, these transferable skills will be invaluable when it comes to setting up your business and juggling your financial priorities.
Launching a business comes with its fair share of hurdles, but you can give your new venture a fighting chance by getting your personal finances in order first.