When you embark on a startup it is important that you make sure your finances are in order. Assuming you’re going to be working on it full time then odds are you aren’t going to be earning an income, which means that you’ll have a fixed amount of cash to live off on until you can start drawing a salary from your startup.
With that in mind it is extremely important that you manage your personal finance properly, and these 4 tips should go a long way towards making that possible:
- Separate your personal and business finances
The first thing you should do is put up a wall between your personal and business finances. Effectively your startup should have its own capital, bank account, and be managed as a separate entity as opposed to your personal finances. That means that you will also have to distinguish between personal and business expenses, and track them accordingly.
- Figure out your ‘burn rate’ for your personal finances
Essentially your burn rate is the amount of cash that you need to cover your monthly expenses – including your rent, bills, groceries, and so on. Once you calculate that, you can then figure out how long your cash can last and when exactly you will have to start drawing a salary from your startup in order to make ends meet.
- Square away your debt or make sure it is properly managed
In an ideal world you will make sure that you have sorted out all your debt beforehand – but that is rarely possible. Frankly speaking many startup entrepreneurs actually end up taking on debt in order to raise capital to fund their startup. If you have any debt, it is important that you make sure it is properly managed and include any repayments as part of your burn rate. It may help to consolidate credit card debt as well to make it easier to handle.
- Review your finances regularly
The last thing that you want is to suddenly find out that you’re in a world of trouble and about to run out of cash – which could have serious implications for both you and your fledgling startup. As far as possible you should try to review your finances regularly (at least once a month) so that you are constantly keeping track of how much cash you have left and whether you are on track as far as your burn rate is concerned.
If you can properly manage your personal finances, that should alleviate one ever-present concern that most startup entrepreneurs face. Assuming you haven’t already started to get your personal finances in order, there is no better time to start than the present as it will only get more difficult as time goes by to separate and keep track of your expenses. Once you have started to do so, it will be more convenient to continue moving forward and take up a lot less time than attempting it retrospectively.