Plan properly for a business and a stable future

Owning a business can provide you with freedom, income and satisfaction.

But to achieve those goals, you will need to take risks: Launching your business plan will require borrowing money or spending money saved specifically for your new venture.

At the same time, you will need to take steps to protect your family’s finances. Risking your family’s financial future is not a feature of a smart business plan.

The life of a business has three phases and each phase has a different impact on your personal finances. These phases are:


Day-to-day operations.

Sale of the business.

During the start-up phase, you will be spending money before you open the doors, and the spending won’t stop when those doors finally do open. You probably won’t bring home a regular paycheck right away either.

To survive the start-up phase you must:

Have your personal finances in solid shape: This means holding no debt other than a mortgage and having an emergency fund equal to six months of personal living expenses. (Remember, financing a new business is not an emergency.)

Research and plan carefully: How much is it going to cost to begin operating your business? Don’t forget expenses unrelated to the product or service you will be selling, such as insurance, legal fees, bookkeeping, accounting advice and office furnishings. Expenses add up quickly.

If you need help planning, the Small Business Development Center at Fort Lewis College – – is a wonderful resource.

Day-to-day operations begin when you can bring home a regular paycheck. Until then, you are working for free and foregoing the opportunity to earn income at another job.

Once you reach this stage, update your business plan – especially your finances. At this point, you will have a better understanding of actual expenses, and you will have to plan for growth. As any business owner will tell you, growing a business takes cash. There are three sources for this money: earnings, investors and loans.

All three come with their own challenges.

After going without a paycheck, you may want to pay yourself all you can. If so, growing from earnings may mean slower growth. Taking on investors likely will mean giving up some control, while borrowing could require offering your home or other assets as collateral. A trusted business accountant can provide invaluable advice for choosing the best path.

Now is also the time to repair any erosion to the foundation of your personal finances. Replenish your savings, make sure you have proper insurance, put money away for college tuition and build up retirement savings.

The final phase – selling the business – requires solid planning long before the actual sale so you can maximize the return on your investment. Consult your accountant, tax adviser and, perhaps, a business consultant.

Starting and running a business is like raising a child: You must treat your business age-appropriately, giving it what it needs at each stage and expecting different challenges in each phase. And through it all, protect your family’s finances. Durango resident and personal finance coach Matt Kelly owns Momentum: Personal Finance.

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