How to avoid Financial Stress when you run a Startup

A startup could just be the beginning of your financial freedom and professional fulfillment. However, if things don’t work out according to the plan, it may feel like a terrible idea as it throws all your personal funds at risk. Therefore, irrespective of how the business performs in future, it is important to maintain a staunch financial balance and prepare a plan to protect your wealth before you fire up a new venture. Here are some ways to avoid financial stress when you run a startup:

• Don’t put all money on one horse

Nothing can hit you harder that having a startup fail, particularly if you invested all your money in it. Entrepreneurs have to think optimistically but that doesn’t mean they should ignore the potential flipside of any unanticipated scenario. It would not make sense if you pull out all the money from your bank accounts, liquidate your deposits or max out credit cards to start your business and to keep it running. At times, your optimism may work but occasionally, things may not turn out well even after you’ve invested everything. In that case, you will have nothing to fall back on as your financial assets are all gone.

• Maintain your expenses separately

You should maintain business and personal expenses separately when running a startup. Whether you’re paying consultation fee or buying office supplies; every investment, however, big or small it is, has to be recorded properly. Any money expended on suitable business-related costs can be deducted from your business income. Experts advise keeping a separate bank and credit card for your business as well as having a proper accounting system in place to keep a track of your expenses. You can use accounting software or hire an accountant if the business demands more extensive expense tracking.

• Diversify your portfolio

It is a common business sense that having a diversified business portfolio can earn you more benefits, but still people tend to keep their business investments restricted. If you are embarking on a potential business idea, then you can balance the risks with some conventional investments. You can diversify between an array of asset segments such as real estate, stocks, bonds, mutual funds, commodities etc. to bring down the risk factor.

According to the financial experts, you need to be watchful of the investments you make so as to avoid loading on investments in your branch of business. For instance, if you start a pharmaceutical business and keep lots of pharma stocks, you are loaded in that sector, which can further enhance your risks in future instead of diversifying it. So, make sure your investment portfolios are diversified to keep your risk from going forward.

• Keep emergency cash support

You should keep enough emergency funds at hand that can see you through a considerable time say, six months to two years. This is necessary if you do not want to be worried about your expenses when you start a business and have no income source to bank upon.  A firm financial basis in place is the key to the success of a startup. Financial analysts suggest that at the initial stages, an entrepreneur is also a company’s asset. If the entrepreneur is unable to sustain financially, the business is bound to succumb. Thus, maintain a financial support to rely on so that you can steer through the tough times when the business is still picking up.

You cannot isolate your fate from your startup’s, so you need to treat yourself like your business. Try cutting down on personal expenses like accommodation cost. It would not be wrong to initiate your business from a small room or the basement of your house than hiring a fancy office. You can always shift to a better place once the things start to move in the right direction. Also, you can hold on to your regular job for a while so that you can take out money for developing your product and refining your business model. This expense cushion can keep you afloat in troubled waters.

• Don’t ignore tax system

Consulting a tax professional is another important thing that can ensure that your startup is structured in alignment with the tax deduction system of the country.  It also ensures that you do not commit any mistakes that can cost you dearly in future. The rules for filing a return can be difficult but a tax expert by your side can take care of common follies like failing to reimburse yourselves. Sometimes you are running a rough time and ignore paying up yourself to keep the cash moving or to avert debts. During a company audit, taxmen will assume that the business has failed to pay you and that the government is missing out on tax revenue from your business, which is a serious concern from their point of view. The mistake of failing to pay yourself can lead to a bigger threat to your business than thought.

• Buy adequate insurance

A bright idea can pave the way for starting a new business but there are several risks involved that demand attention. It is thus necessary to consult a financial expert on buying pertinent insurance policies to mitigate such risks. Disability insurance it touted as one of the key insurance plans for business entrepreneurs who solely rely on their ‘ability’ to generate income. Analysts suggest that disability insurance covers your ability to make business and is particularly significant if you are the solitary mind behind the startup.

Other insurance options depend on the nature of your startup. There are policies to protect you against damages connected with expert advice (errors-and-omissions policy), to protect a company or an employee against legal action (directors and officers policy), to cover the cost if one partner or officer dies (key person policy). Some policies cover you adequately if you invest in expensive technology, or use your equipment for business purposes (work from home) etc. Buying adequate insurance on the recommendation from an expert can save you from stressing yourself out during the onset and operation of a startup.

Considering the stakes attached to your business, it is recommended that you follow these ways to keep stress at bay while you run a startup.