So you came with an amazing idea for a start-up. It may be the best thing since sliced bread or Chipotle’s Chicken Burrito Bowl. And like most entrepreneurs you’re convinced that your business is going to be a hit. But before you start celebrating by buying that two-thousand dollar watch you’ve been eyeing, here are some tips to ensure that your personal finances and your start-up don’t end up crashing.
Save Your Money, Save Your Business
You know that song Burn Baby Burn? Well, if you spend more money than you should in the early stages of your start-up, that is precisely what will happen to your business and personal life. Uncertainty is the name of the game when it comes to entrepreneurial projects and that’s part of the fun. But you should never involve your private assets in this game of risk.
When a start-up first launches, it’s tempting to rely on personal credit or funds to get you the money that you need to move forward. You may have visions of becoming the next Mark Zuckerberg and flying to the Maldives in your private jet, and you may even end being one of the lucky ones, but don’t give in to this fantasy just yet.
Even business owners with lots of their own money to invest, can fall into this trap and end up losing all of their assets. Keep in mind that your business might not take off in the way you anticipated so make sure to protect your personal assets before putting your business plan in place.
As an example, Jacques Spitzer’s startup, Raindrop Marketing grew exponentially in four consecutive years but Spitzer and his partner waited until all the taxes were paid before taking home any profit. Bottom line: be smart (it’s harder than it sounds), cautiously managing your money so that debt doesn’t build up and quickly unravel your dreams of wearing a polo shirt while sailing across the French Atlantic.
Six Month Rule
Here’s a great tip. Treat your business like a new relationship. You wouldn’t move in with someone without dating them for at least six months right? Otherwise you’ll end up losing your girlfriend and that great studio apartment in the East Village. The same goes for your business. Give yourself six months to earn a return and be modest when it comes to paying yourself. Your salary should be based on very clear benchmarks, not emotional decisions motivated by desperation.
DO NOT RELY ON YOUR BUSINESS TO TAKE CARE OF PERSONAL FINANCES.
Sorry if it sounds like we’re yelling, but this is probably one of the most important pieces of advice. There’s a reason people say to never mix business and pleasure. Difficulties in your personal life can ultimately negatively impact your business, so keep these two areas far away from one another.
You’ll Get By with a Little Help From Your Friends
So, if you shouldn’t keep your business afloat by draining your personal finances, what can you do? Three words, ten letters. Ask for help! If you’re not receiving the returns you expected and don’t want to risk your personal savings or retirement fund, turn to family, friends, or venture capitalists to raise money. Open a Kickstarter fund if you need to. It’s all the rage now, just ask Joe Exotic and his supporters.
Before you start imagining what your life will look like once you strike it rich, imagine what your life will look like at 65 with little to no savings.
That should give you some perspective.
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