By JJ Montanaro for USAA. For more advice, visit the USAA Member Community.
busi·ness [biz-nis]: the activity of making, buying or selling goods or providing services in exchange for money.
Maybe you didn’t need a description from Merriam-Webster to understand what business is all about, but it can’t hurt. Starting a small business can be a way to pursue an interest, make a few extra bucks, or just keep busy. It could also be a life changer. Whatever your goal, it’s important to focus on the big picture of a small business. To do that, embrace these eight personal finance points:
1) Don’t start in debt
Some entrepreneurs get so excited about their new business idea that they can’t wait to get started. Enthusiasm is good, but not if it means piling up credit card debt to finance the business. Saving up enough money to start on the right foot is a better plan.
2) Stop mixing business and pleasure ASAP
While it’s often your personal funds that start the business, the sooner you can put a wall between the finances of the two worlds, the better off you’ll be. Ideally, your business will pay you back, provide you an income, and then stand alone so you no longer have to mix personal and business finances.
3) Track it separately
A separate bank account for your business and a detailed accounting of all business-related expenses will provide a clear vision of how things are going and will simplify tax time.
4) Pick the right entity
Most businesses start as sole proprietorships, but from a tax and liability standpoint, there could be other, more useful setups.
5) Insure your operation
Having a business will necessitate a fresh look at insurance. From liability and property insurance to workers compensation, running a business comes with its own unique requirements.
6) Keep business cash in the bank
Businesses, especially new ones, will experience cash flow fluctuations. To get your business through the lean times without putting a strain on your personal finances, be sure to sock away some savings when times are good.
7) Take advantage of expanded retirement options
From SEP-IRAs to 401(k)s, a small business offers a number of easy ways to save on taxes and expand your retirement savings.
8) Have a plan
Just because you’re good at your craft doesn’t mean you’ll be good at running a business. Know your weaknesses, get help from experts, and have a plan to keep your business on the right path. The U.S. Small Business Administration has many helpful articles as well as a business planning template available on its website if you need help getting started.