Streamline your finances for starting a business

With the economy in a crunch, many are considering whether starting a business is even possible - let alone wise. With the right planning it is not only feasible, it can become very rewarding both financially and on a personal level. With the wrong - or no - planning, you are certain to head for a quick disaster.

If you are planning to start a business but lack the funding to keep going for long, you need to set up the business for a shoestring startup. This is where your personal finances will come in to play. You will without question be the largest money drain on your company. Keeping yourself alive and both mentally and physically healthy is imperative. There are several ways you can do this, the most important are finding ways to maintain close to the standard of living that you have currently, a sharp decline in living standards will be a de-motivating and can cause you to lose the drive you need more than anything.

Here are some tips on how to set your life and finances up to manage a reduced cash flow for the first 12 months.

Ten Ways to Cut Expenses

1. Change providers

Most competing companies will offer tremendous savings to change phone, internet, Television, cell phone and other services. Some have this offer for a full year. In my area I can right now change TV, Internet, Phone, and save about 50% on my current bill the first year.

If you are going to do this, do it before you start your business, simply because you want to make sure that everything works before you are stuck without phone and internet when you are trying to run an online business.

2. Learn how to cook

Cooking your own meals is both healthier and much cheaper than the alternatives. If you save your entertainment for one night a week and some business lunches, you will save a large amount of money. There are plenty of recipes that will serve a family of four a healthy and tasty dinner for under $10. The internet Is a great resource for recipes.

3. Defer your student Loans

If at all possible, make a deferment of your student loans while in the startup phase. You may free up a significant amount of money each month during the critical phase.

4. Use Your Current Benefits.

If you are currently employed and either facing a layoff, or planning to quit. Use the insurance to its fullest as a precautionary measure. Dental work is much cheaper if caught early, as are most medical issues you might face. To go uninsured as a small business owner is not recommended but in many cases the norm, if this is your only option because of cost. Then make sure you get all your checkups, refill your prescriptions, and do your vision / dental work before you leave your old job. An ounce of prevention is worth thousands of dollars in this case.

5. Change Cars

If you have a currently high payment on a vehicle. Do some shopping around to see if you can get a car with lower payments and a better warranty situation than what you are driving now. In addition to the cost savings if something breaks, you are likely to find a car with better gas mileage, which is something that no small business can afford to overlook right now.

6. Buy from failed companies

If you are facing a layoff because your company is closing, talk to management about buying out assets such as computers and printers, office supplies etc. You can buy everything you need for your own business at bargain basement prices.

One of my clients bought his entire office. From his desk, computer and printer to the potted plants and all the paper he will need for the next five years, for $50 from the company that he worked for when they had to close.

If you can’t buy from your old company, check listings such as Craigslist, for other companies going out of business.

7. Shop in bulk. But only after you learn to organize

If you have access to one, join a membership store such as Sam’s or Costco. This will allow you to accomplish a couple of things at once. You will buy larger amounts, reducing the number of trips necessary. These stores also have deals on office supplies that will beat the ordinary stores by a mile.

However, you will need to plan and organize your shopping or you will end up spending more in these stores than you would otherwise.

8. Consolidate your Credit Cards

Consider getting a new credit card with a 0% interest on balance transfers. Many companies offer this for a full year. This will save you quite a bit of money in interest, which will free up a little extra cash to get you by.

9. Move to a cheaper place to live

If you are a renter, you might consider moving to a smaller or less expensive apartment to further reduce the total overhead. A smaller apartment will both have less rent and most likely also save you money on utilities.

10. Plan your taxes

Small companies run from your home can have some major tax benefits; you are allowed to make certain deductions for a home office as well as the accompanying utilities, different mileage rules will apply for driving etc. Since you are responsible for paying your own taxes now, having this figured out in advance will allow you to use the money these deductions will save you right away, instead of getting them back in a year.

Before you start this process, check with your accountant on how to do it properly. The home office deduction is jokingly referred to as the “Audit Me Deduction”. If you mess with the tax man you will quickly end up paying more than the best planning could save you.

You can start a business on a shoestring budget and still maintain a good quality of life if you plan your finances properly. These tips will help get you through the first year, which is the hardest part of any startup. Having your ducks in a row before you take the plunge will be one of the best time investments you can do, and it will help save your sanity, not just your money. Remember that although some of these tips will improve your overall financial status, this is primarily intended to free up capital for year one.

Doing it right also means you can show a future investor you managed to start the business using very little capital. Showing that you have your act together and that you are willing to take a hit to make it big. Not a bad sales proposition to bring to the table.

Your business is waiting for you; plan to succeed and you will get there sooner than you think.