Entrepreneurship still remains one of the most cherished dreams in America.
The ability to widely determine your own hours, pay and fate seems like an attractive prospect.
However, this to not typically the reality of most startup businesses at first. This freedom comes with the responsibility of keeping your personal finances afloat long enough to see your business thrive.
The ideal scenario is to launch your business from savings in the anticipation that like most startup businesses, it will not immediately be profitable to a large extent.
However, circumstances do not always allow years of preparation in pursuit of a goal, and so there are a number of ways draw a level of income from your startup business that is sustainable for both you and your company.
The first step in maximizing your personal income from a startup business is to learn to live with less. Living without the level of guaranteed income most worthwhile traditional jobs provide can be somewhat of a transition. While the start of a business is an exciting time, it is also a very expensive process that leaves little room for personal expenditures until profits rise to a consistently positive level.
As a business owner, you must maintain your business and pay any employees you may have before taking any profits for yourself. Many startup owners turn to loans or credit to help them subsist during this period, but this most often leads to debts which only delays profits and can signal the death knell of a business if the budget is not eventually balanced. A good way to get into productive financial habits is to determine your essential expenditures in a given month, then set a limit to the amount above this figure you can spend in the month. It is extremely important that you keep a personal ledger of financial transactions as well as one for your business, using software like Quickbooks or Peachtree and compatible business checks. Never mixing business and pleasure is paramount, the exception of course being expenses like internet and phone service that might be considered work –related for the home based business.
It is not necessary to pay yourself a high base salary to experience the positive aspects of business ownership. As an entrepreneur, you have other compensation options available to you that effectively increase your income without consistently drawing from the revenue of your business. A high-quality healthcare plan is a business expense with practical benefits. A system of bonuses and commissions provides an incentive for outstanding performance. Regular contributions to an IRA decrease your taxable income and help you save for retirement. Solid decisions in this area benefit both you and your company.
A long view of your business is essential to surviving the first few years, wherein most businesses fail. The temptation to use profits to augment your lifestyle can be strong for many inexperienced entrepreneurs. Overpaying your own salary drains revenue that could help your business grow and play a central role in the collapse of an otherwise promising venture.
As another concern, the IRS has successfully pursued legal action against business owners who violate their guidelines of reasonable compensation. Your salary should be the bare minimum that you can live on. Every dollar you pay yourself above that which allows you to maintain a decent standard of living is one that could have been used to make your business more successful and therefore more profitable.
Staying mindful of the long-term impact of your financial decisions regarding your startup business is the difference between a success story and an embarrassing failure.
There are more great tips to managing your debt and becoming financially responsible in this article that will show you how to Regain Control Of Your Finances With These 6 Tips For Reducing Your Debt.
|Written on 10/10/2013 by Carol Peirce.|
Photo Credit: Rain Rabbit