Startup Businesses - December 13, 2011

Whether you're starting a business or buying a franchise, it's important to get your personal finances in order prior to launching your big idea. Doing so will help you understand the expenses you have outside of your business and how your overall bottom line will affect your personal bank account.

Businessweek says that there are a few key things to look at before starting a business and quitting your day job. First, calculate how much money you have in savings and how long it will last you while you're still in the initial phases of launching your company. Idealistically, you should have approximately 24 months worth of savings to cover your living expenses.

It's important to have accurate numbers while you're calculating your routine personal expenses. This means going back and looking at bills you have received over the past few months to gauge how much you've been spending out of each paycheck. Make sure to take everything from utility bills to credit card debt into consideration while doing the math.

If you have student loans, Businessweek notes that you may be able to defer by up to two years by filing for economic hardship as you try to start a business. This will relieve you of education loan debt monthly, which can be one of your biggest bills and financial issues to tackle.

Many entrepreneurs look to business loans to start their companies, but this can result in additional debt that may be difficult to pay off in the future. Individuals might want to consider utilizing retirement savings or extending their lines of credit in order to fund their startups and begin generating a profit.

After hammering out your personal finances, you can move forward and calculate your operation expenses. Fixed and variable costs will make up the money you spend on your business. Variables can be defined as expenses that fluctuate, such as shipping and distribution. Fixed costs are bills that are set in stone, such as rent and insurance. As a self-employed individual, you can expect your business expenses to potentially affect your personal finances from time to time.

Although it may seem like a lot of effort, taking the time to calculate your expenses and work out your personal finances can make sure you don't end up facing debt that may be tough to get out of once your business is in operation.