Even after years of large corporate merger after merger and nationwide businesses populating cities across the country, many Americans still want to own their own business.
A 2015 Gallup Poll found that two-thirds of the U.S. population was employed either part or full-time. When asked whether they’d prefer to work for someone else or start their own business, 57 percent said they’d prefer to start their own business. Yet the same poll found just four percent of the working population had their own business and employed people.
A big reason for the disconnect is debt. Those with debt aren’t able to borrow as much money and can’t afford to take on more financial commitment and risk. Many people who are in a better position to make their dreams a reality lack the financial literacy to run a successful business. However, personal financial excellence and small business (SMB) success have more to do with each other than typically thought. Let’s discuss some evergreen tips for success on both fronts.
Balance a Budget
If you can’t balance a budget, how will you ever balance your SMB’s books? Eventually you could be big enough to employ a full-time bookkeeper, but this isn’t realistic when you’re starting out. When learning how to create a realistic budget, don’t focus on arbitrarily restricting your spending. Instead, think about your goals and work backward.
Change Your Credit Behavior
There’s over $1 trillion in collective credit card debt in America, according to a recent study by WalletHub. Unlike medical debts or what feels like mandatory student loans, credit card debt is usually accrued through a debtor’s own poor behavior. Many SMB owners get into trouble early in their operation when they finance unforeseen costs and the debt snowballs out of control. Changing behavior toward credit goes hand in hand with realistic budgeting. When we know our long-term goals and what we currently have, we’re less likely to dig ourselves—or our business—into a hole with unwise financing.
Understand How Credit Profiles Work
In the finance world, you’re only as good as what you’ve done lately. When it comes to starting a small business, your personal credit report matters. If you have unpaid collections on your profile or a history of late payments, that could impact your ability to get a small business loan. Conversely, borrow too much for your business that you can’t pay back, and you could impact your ability to secure housing, buy or lease a car, or even get a job (should you be on that route again).
Pay Off Debt
Here comes the hard part. It’s one thing to learn about budgeting fundamentals, disciplined credit spending and how you appear in the eyes of lenders. It’s quite another to use these details to change your financial situation. Taking on large credit card debt is like willingly getting into quicksand. The high monthly interest rates will bury you if you cannot make enough headway on them. Whether you have to enlist the help of a non-profit credit counseling agency or leverage debt relief services, the quicker you get out of crippling debt, the healthier your financial prospects become.
Prepare for Disasters
We never know what’s coming next. Any number of things could occur to jeopardize our finances. But most Americans don’t have savings even to cover a $1,000 emergency let alone weather a severe financial storm. Per CNBC, 65 percent of Americans save little or nothing at all.
And part of financial preparation is adequate insurance. If you don’t have a tailored car insurance policy and your vehicle is essential, what happens if it gets totaled? What if our normally healthy bodies develop a condition that suddenly requires monthly doctor’s visits?
As a small business, what happens if a natural disaster strike? What if your shop is vandalized? A good insurance plan is essential, but so is a disaster-relief plan, which can limit your business’ downtime post-emergency and save the confusion and inefficiency that results from making decisions following a big event. Regardless the policy or disaster relief plan though, nothing replaces the cold hard assurance of an emergency fund.
Never Stop Learning
Great minds never stop learning. Even if you feel confident about your financial literacy after implementing the above steps into your lifestyle, there’s most certainly room for improvement. Make it a regular part of your week to read quality finance publications. In a piece for BizJournal, Andrew Housser, financial thought leader and CEO of Freedom Financial Network, recommends four publications that specifically focus on small business owners:
- Small Business Development Centers — Training, counseling and technical assistance administered by the U.S. Small Business Administration (SBA).
- Money Smart for Small Business — Financial literacy training by the Federal Deposit Insurance Corporation and SBA.
- SCORE Association — Nonprofit organization offering financial literacy tools in the Finance and Money section of its website.
- 360 Degrees of Financial Literacy — Website offered by the American Institute of Certified Public Accountants.
You can learn more about how to get a finance for a development with BrickFlow Guide. By integrating the above tips into your life, you’ll be better positioned to achieve your long-term personal finance goals and finance a healthy small business.