A Financial Guide for Flying Solo

How to Maintain Your Financial Stability as an Up-coming Woman Entrepreneur

By: Leena Parwani, CEO & Founder of Icareinsure Insurance Brokers

 

As a budding woman entrepreneur, you probably spend most of your waking hours trying to ensure the success of your business. But how secure are you and your finances in the event of a crisis?

There are many benefits to entrepreneurship. You get to be your own boss, work in a business you are passionate about, and reap significant rewards if that business turns into a success. Unfortunately, entrepreneurship often entails significant risk, and without proper planning, a failed business can also tank your own finances.

No one wants to consider the possibility of their business failing, however; it is imperative to consider the several risks you as an entrepreneur are vulnerable and therefore prone to. External market forces, both negative and positive, play a vital role in the shaping of your business. Be it a worldwide industrial fluctuation or key changes specific to your business alone; such as, critical illness, management substitution, or death of a partner, it is imperative for a businesswoman to foresee changes and plan ahead accordingly.

Here are a few tips on how to set yourself up to survive the worst-case scenario of your business going under.

· First, keep your personal and company finances separate. There should be a wall of separation between your own finances and the corporate account. This will ensure that you save money for yourself and don't lose it all on the business. More importantly, it protects you from liability in the case of legal trouble or corporate debts. Your business should be incorporated as a distinct legal entity with its own finances. Otherwise, you run the risk of having to pay any debts the company incurs out of your own pocket.

·  Second, maintain your market value. You may not intend to work for someone else ever again, but it's still a good idea to keep that resume up to date while working on your own business. Keeping a record of your role within the company can help give potential employers context for what skills and experience you might bring to the table.

·   Third, define your role and income in the company, and pay yourself an appropriate salary for someone in that role. Many entrepreneurs will only pay themselves the bare minimum they need for survival at first, but this can be a dangerous habit. Not only does it put your personal finances in jeopardy, it also creates a misleading picture of your company's finances. Paying yourself an appropriate market rate gives you the resources to cover basic expenses and save up money. It also allows you to factor in how much capital you will need to finance your business long-term, and it saves you from drastically changing your cost structure a few years down the road.

·  Fourth, you’re more likely to come out of your business in good shape if you have clearly defined financial goals for your personal finances going in. These are distinct from any business goals and should only reflect what you want your own bank account to look like. Personal financial goals might be saving up enough emergency money to provide for your family for a year, or building towards retirement. Knowing what you want from your personal finances will help you structure the cash flows from your business in the best way possible.

·  And finally, no matter what the fiscal status of your business or what your financial goals may be, it's always useful to talk to a professional financial planner or advisor. A financial advisor can give you advice on investing the money you have saved up, budgeting your resources to save the maximum amount, and structuring your finances to reduce your tax burden and protect yourself from liability.

Many entrepreneurs don't take the step of talking to financial advisors, as they are short on time. In reality, it takes very little time to talk to a professional and create a financial plan. Considering that a good financial plan can mean the difference between stability and going broke, there's no sound reason not to take a couple of hours to talk to a professional and consider at least working with them to prepare for worst case scenarios.

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