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According to reports, more than 700,000 individuals and companies file for bankruptcy and many more face ongoing financial difficulties in an average year. If you are dreaming of opening a business, but worry that your past financial struggles may make it impossible, know that there are steps you can take to make your dream a reality.
Here are 5 tips to help you on your way.
1. Be Prepared for Financing Challenges
Obtaining financing for your new business will likely be the largest hurdle for you to overcome. So before you start applying for financing, draft a comprehensive business plan.
And when looking for financing for your startup business, here are a few places you’d want to consider:
Start your business with a partner who has good credit.
Seek financing from local community banks, instead of big chains.
Research local grants or incentives that may be available to you to finance your business.
2. Consider Businesses With Low Startup Costs
If you are having trouble obtaining financing for your dream business, you might consider starting a business with lower startup costs that you can finance yourself or with the help of friends and family. Examples of this type of business include personal service businesses, working as a subcontractor for an established business, or working as an independent contractor.
Doing a startup business with low startup costs first will help you gain experience while acting as a crouch to help you improve your financial and credit situation. And when you have the means to get your dream business started, you can parlay the knowledge and experience you gained from the startup business.
3. Be Wary of Over Generous Payment Terms
As a person with financial struggles, you may be tempted to give your customers a lot of leeway with their payment terms. However, money is likely to be hard to come by in the beginning and giving your customers too long to pay can create cash flow problems that could sink your new business.
So be realistic and practical with your business decisions. Give only what your business can afford.
4. Keep Good Records
Whether you obtained financing for startup costs or not, you will probably need to renew existing or apply for new financing in the future. Accurate records that demonstrate the success of your startup business will be vital for convincing lenders to approve your financing requests.
“Your financial statement is your report card...”
Investors or lending institutions (e.g. banks, financing companies, etc.) always look at your accounting ledger to grasp the status of your business. A healthy financial statement reflects a healthy business - more income vs expenses, more assets vs liabilities.
Good, accurate records and healthy financial statements, will make you look good in the eyes of banks and investors and help you get a financing.
5. Make Sure You Understand How to Do Your Payroll
Payroll is one of the most important and complex aspects of running a small business because of the complexity involved and the high risk of getting it wrong. But what is a payroll? In simple words, it’s paying your employees.
However, it’s not just paying your employees correctly for the time they have worked. You also need to compute and report federal, state and local taxes, as well as handle deductions like retirement plan contributions, health insurance and wage garnishments.
Another area that small business owners need to pay particular attention to is properly classifying workers as either employees or independent contractors. Employees may be entitled to overtime pay, reimbursement of expenses, benefits and other items that independent contractors are not.
Additionally, you are required to withhold taxes from your employee's salary, while independent contractors are responsible for handling their own taxes. Incorrectly classifying employees can result to substantial penalties.
You have 3 options:
Hire an accountant to do your payroll for your business
Take courses in accounting and do your payroll yourself
Utilize a payroll service
Of course. each option has pros and cons. There’s also a difference in their costs, not just money but time. So when considering which
option to take, think about what will work for you and your business. Also, think about the short term and long term effects - being practical is good short term while investing is good for your business long term. Assess your situation first, before coming up with a decision.
Final Encouragements
Starting a new business when you have struggled financially in the past will be challenging, but it can be done. Seeking creative solutions and being flexible enough to change your plans when your first choice doesn't work out is the key to success.
About the Author
Patrick Young is an educator and activist. He believes people with disabilities must live within a unique set of circumstances--the outside world often either underestimates them or ignores their needs altogether. He created Able USA to offer helpful resources to people with disabilities and to provide advice on navigating various aspects of life as a person with disabilities.