It’s pretty obvious that there are a lot of things that business owners need to think about, not just in the midst of it all but even right in the beginning when they’re trying to create their business. There are just loads upon loads of things to do, consider, look into, buy, and just left and right, you have to spend money. Plus, you can’t forget about all of the challenges you can expect to face, too.
Running a business is expensive, and getting that business started is expensive, too! But with all of that, one major problem is getting into debt. While yes, it’s really hard to pay for all of those upfront costs, by all means, that’s definitely true.
But regardless, because the mentality of “my business will get successful, and I can pay it off later” happens, all that really means is that more and more debt is racked up, and it becomes more challenging to manage. Overall, if you want to thrive (rather than just survive), you need to understand that you can’t risk being in debt. So, let’s take a look at what you need to do and what you can avoid!
Why It’s So Common for Business Owners to Get into Personal Debt
While yes, thankfully, there is help from services and people like Alex Kleyner National Debt Relief that makes dealing with debt more manageable, overall, it’s best to just try to outright avoid debt if you can!
So just like what was mentioned, starting up a business can get really expensive really fast. Just think about it, between initial investments, operating expenses, and the unpredictability of cash flow, it’s easy to see why so many business owners fall into the personal debt trap. Here’s the deal: many entrepreneurs don’t have access to large amounts of capital, so they dip into personal savings, max out credit cards, or even take out personal loans to keep the business afloat.
The pressure to succeed can push you to take financial risks, and when those risks don’t pay off, guess what? You’re left holding the bag—a bag full of debt.
What Can Be Done to Avoid Debt?
While it’s not exactly the easiest thing, depending on what your business is and what your overall goal is, there might be a chance that this can be successful. So, let’s take a look at how.
Separate Business and Personal Finances
When you’re starting out, it might be tempting to dip into your personal funds to fuel your business. Don’t do it! Seriously, it’s a bad idea! Generally speaking, mixing personal and business finances is a one-way ticket to financial chaos. Instead, it’s best to just open a separate business account from day one. This move not only keeps your personal finances safe but also makes it a breeze to track business expenses, manage cash flow, and file taxes.
Avoid Relying on Credit Cards
This might be the biggest spot where people make a mistake! Credit cards might seem like an easy solution when you need cash fast, but they can lead you into a debt trap with high interest rates. Instead, explore other financing options like small business loans, grants, or even crowdfunding.
If you do use a credit card, make sure you have a solid plan to pay it off quickly. The last thing you need is to be buried under a mountain of credit card debt while trying to get your business off the ground.
Bootstrap When Possible
Does this sound grueling? Yes, it does, but it works! So, bootstrapping is the art of building your business with minimal external funding. This means getting creative with your resources—using free tools, bartering services, and keeping overhead costs low. It’s about making smart, frugal decisions to stretch every dollar. The less you borrow, the less you’ll owe, which means less stress in the long run.
Plan for Taxes
One common pitfall for new entrepreneurs is forgetting about taxes. Uncle Sam (or any tax authority, depending on where you live)will come knocking, and you need to be ready. So, you’ll want to just set aside a portion of your income for taxes right from the start.
So, with that all said, you’re going to want to just consult with a tax professional to understand your tax obligations and make sure you’re making quarterly payments if required. But overall, planning for taxes now can save you from a massive bill and potential debt later.
Don’t Quit Your Day Job—Yet
Now, this next one might not be fun, but you still need to think about it; again, it’s about financial security. If you’re starting your business as a side hustle, keep that day job for as long as you can. It might be exhausting, but that steady paycheck can keep your personal finances stable while your business gets off the ground. Once your business is generating enough revenue to cover your personal expenses, then you can consider taking the plunge full-time.
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