When you are an entrepreneur, you quickly realize how different being a business owner is compared to being an employee in the corporate world. In a big company, you are just one of many and, for the most part, you only have to watch over your team or a small functional area within the firm. Specialized groups of employees handle each administrative function and focus on that as their sole purpose. As an entrepreneur though, you live the adage that the buck stops here. Every area of the company – from marketing and sales to production and human resources – falls under you. You are responsible for financial decisions too. Money is critical to assuring your business growth, so it’s important to follow some key financial tips for success.
Minimize or Avoid Credit Card Debt
The process of birthing your entrepreneurial venture is a very powerful experience. You move from dreaming of what could be to taking action and bringing your vision into form. As part of that process, you have to take important steps like deciding on corporate structure and coming up with ways to finance the new venture. Many new owners are tempted to raise capital by using existing or new credit cards. While this path of least resistance is an easy one to take, it’s not the best plan when starting out. First of all, you’ll be on the hook for personally paying off all of those loans should something go wrong. Second, the high interest rates often result in your monthly minimum payments barely reducing the balance on the cards.
Converting Life Insurance Policy Assets
If you have significant life insurance assets, you may be interested in leveraging the cash value of the policies to help finance your startup venture. You could also utilize these resources to help provide an injection of capital that could help fund a significant expansion of your existing enterprise. Permanent life insurance policies have both a death benefit and a cash value part of the account. When you pay the premium each month, a portion of that money goes toward the cash value. At a future time, you can access and pull money from the value of the cash account. There are many terms associated with a modified endowment contract, or MEC, however. It’s really helpful to review a detailed guide that walks you through how converting assets to this type of structure works.
Never Pull Money from Your Payroll or Sales Tax Reserves
With any business, you can have ups and downs associated with cash flow. This is especially true if you face an economic downturn or are just starting out. If you are facing a deficit in funds, it’s very tempting to consider pulling money from your payroll or sales tax accrual accounts. Whenever you pay your employees, your company is responsible for managing the employee payroll deductions for social security, federal and state taxes, etc. In addition, the business has to also make a corresponding social security contribution. For sales tax, each time a customer buys from you they pay for the purchase and remit the sales tax to you also. All of these funds are entrusted to your safe keeping and are accrued and paid to the government in the future. If you take money from the buildups and then can’t pay the amounts you owe later, it’s not considered an obligation of your corporation. You will be personally responsible for the payment of those debts.