While launching a small business might be trendy, it's crucial to ensure that your personal finances are protected, said Beth Braverman, a financial expert and freelance journalist for CNN, Money, The Fiscal Times, Consumer Reports, and CNBC.
With a record 5.4 million new business applications filed in 2021, Braverman noted that many small business owners might have a great deal of passion but limited experience. She advises business owners to protect their personal finances by taking the following steps: anticipate a lack of cash flow in the first few months, save for emergencies, pay yourself, and invest in a retirement fund.
Be prepared for your business to have zero revenue in the first few months, says Braverman. She added that many small business owners have no income when their business starts, and it's uncertain when you'll start making enough to survive. Especially if your business is your full-time focus, Braverman said, you won't have the chance to make money elsewhere to supplement your income. So, before you even start your business, Braverman recommends saving enough to cover at least six to nine months' worth of expenses, and set that money aside to ensure that you'll have a roof over your head if things don't go to plan.
“Once the business starts generating revenue,” Braverman told WKTV News Channel 2, “you'll want to start setting aside cash reserves as well – up to a year's worth of business expenses – so that you can separate your own financial responsibilities from that of the business.”
Next, make sure that you put yourself on the payroll, Braverman said. Don't just funnel money back into the business – remember that you worked hard to earn that money, and you deserve to be paid like any other employee. And as soon as you start getting a paycheck from your business, she added, invest that money in a retirement fund. While many business owners assume that their business is their primary retirement asset, Braverman said that's not always the case. It's imperative to investigate the right retirement plan for yourself, such as a Roth IRA or a solo 401(k).