Square Away Your Finances

April 13th, 2010 by | Print

This is post 4 of 10 in a series discussing the essential steps for launching a successful, sustainable solopreneur business. If you missed the disclaimer post, it is helpful if you take a minute to read it before going forward. Here’s the link to the post.

Plus, since the process is in sequential order, make sure you’ve defined your UVP and prime prospects, started your market research, and your business plan. During the creation of your business plan, you will calculate how much capital you will need – both personally and professionally – to cover you until your business reaches self-sustained profit.

So let’s start with a calculation of your personal financial needs.

Personal Finances

If you’re cash-rich, debt-free, and are going to fund your start-up with a minute amount of your personal money, skip forward to Professional Finances. No sense in wasting time.

If however, you are not so fortunate and don’t have personal budgeting software, I’ve added a link to a worksheet for reviewing your personal finances.

When you launch the Excel spreadsheet, you will see two tabs at the bottom. Complete the first tab, “Monthly PnL” before filling out tab 2, “Projected Cashflow”. You can either print out the worksheets and manually enter your information or simply type your numbers in and the spreadsheet will automatically calculate your totals.

TSG Personal Finance Worksheets

It’s necessary to review your personal finances before calculating your business budget. Your personal budget will indicate if you need a loan for your business or if you can self-finance your start-up. Plus, if you do need a loan, to be eligible, not only will need to submit a personal budget to a lender, but you may need to clean up your credit, too.

Once you complete the worksheets, here are a couple of important points to remember before moving forward.

1. Make sure you add in any upcoming changes.
Don’t budget solely based upon your cash flow today. Include all increases in income or spending (from sources other than your new business) that may be a month or more away. For example, do you have an upcoming tax bill that will take a bite out of your savings or better yet, a return?

2. Are there opportunities for cutbacks and increases?
If you can’t balance your monthly personal budget, you will have problems doing the same for your business. Good business requires that you are aware of your profits and losses, and have the ability to identify opportunities for reducing your expenditures while finding new sources of profit. Doing the same for your personal finances is a plus.

3. Talk over the figures with your partner.
If you are married or share income / bills with another person, make sure you review the numbers with them and they agree, not only with your numbers, but the risk you are willing to take. If a spouse has to be the sole earner for a period of time to help get your business growing, you need to make sure you agree to the same period of time. You don’t want to start your business hoping your partner will cover you for nine months when they are thinking three. Get consensus upfront.

4. Build in a buffer.
Don’t take the saying “life is full of surprises” lightly. Not all “surprises” are pleasant.

What’s an appropriate buffer? That will vary based upon your scenario. If your venture fails, how long will it take you to find a new source of income? What is your risk threshold? While many personal finance gurus recommend you have sufficient savings to cover three months worth of bills, you may want to double that time frame. First, they calculate that number considering you have a stable income. Second, if you need to ditch your business, are you going to be another job seeker in today’s troubled employment market?

5. Set limits on your loss.
No, you don’t want to be a pessimist, but you don’t want to be a penniless fool either. I recommend you set two limits – the early warning review limit and the time to do something else limit.

Don’t leave the review (and if necessary, conversation with your partner) until your are cashless. Desperate people tend to make riskier decisions. It’s better to have time to review your current cash situation while you still have time to adjust than waiting until you feel like you have no other options.

Professional Finances

So how can you go about figuring out how much money you need to build your business?

Click on the following link to download an Excel spreadsheet with a column for one-time start-up expenses and additional columns for projected monthly expenses (both re-occurring and future one-time charges).

TSG Start Up Costs n Monthly Projections

After calculating these fees, compare them to your Personal Finance data. Do you have enough money in your personal finances to foot the bill?

Depending upon the amount of funds you seek, you have a couple of different options. Right now, lending is still very tight. Although it often seems as if you have to prove that you don’t need the money and have a guaranteed way of paying it off in order to qualify, here are some options to consider:

1. SBA Loan
You can go to a local bank that works with the SBA or go to the SBA web site for additional data on forms, requirements and lenders.

2. Investors
Whether a friend, family member or stranger, bringing in an investor may be your only option. There are some things you need to consider when pursuing this path:

  1. What share of your business are you willing to give up for the investment?
  2. Who is a good match for you? Bringing in an investor is like getting married. What decision-making rights do they have? Can you get along? What other professional benefits do they offer? What is their desired exit strategy?
  3. If you’ve never sought out an investor, find a pro to help you with the process.
  4. Put your agreement in writing.

3. Business Money Today
I recommend you not only check out the Business Money Today website, but contact them for additional help. I participate in a few different online business forums with the people behind this site and always find their advice insightful and honest.

4. Improve Your Personal Finances
While this may not be the option you’re hoping for, it may be what’s needed. If you are like many Americans with a higher-than-healthy credit card debt with lower-than-hoped-for income, you likely will need to improve your personal finances before you can qualify for a loan or before you should consider launching a new business.

If you are going for outside funding options, you will need to include a balance sheet, income statement and cash flow statement.

Need help turning around your personal finances quickly? Let me know. A friend recently completed an easy to follow and implement ebook titled, “Taming Your Financial Beast Today” that hasn’t hit the Net yet. If you’re interested, leave a comment below or send me an email (address following) and I’ll see what I can do to get you a discount.

Next up, “Licenses, Permits, Certifications and Legal Structures”.

And as always, if you still find yourself stuck, leave a comment below or send me a note at thesologuide@gmail.com for additional help.

All the Best,

Doug Dolan
The Solopreneur’s Guide


3 Responses to “Square Away Your Finances”

  1. physical therapist Says:

    Wow this is a great resource.. I’m enjoying it.. good article

  2. Douglas Dolan Says:

    Thanks. I’m glad you are enjoying it and finding it helpful.

  3. T. Thema Martin Says:

    Everyone wants to start a business. However, they don’t understand the financial portion. You should have your finances in order and know what financing you will need before you dive into the world of entrepreneurship.

    T. Thema Martin
    Editor, Savionaire
    Refined Single Living On The Go

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