Personal Finance

Why every start-up business needs a strong financial footing

The makings of a solid, sustainably successful business are there: a smart, unique start-up idea, plus the entrepreneurial drive, acumen and vision to turn that idea into a viable business venture. But however strong the idea or the personal conviction behind it, a start-up isn’t going anywhere without a thoroughly thought-out financial strategy to carry the business and the business owner through good times and bad.

Such a strategy should encompass both business and personal finances — since for many owners of start-up companies, the two are inextricably linked — and it should be put in place


actually launching the venture, advises Allan Katz, a certified financial planner and president of Comprehensive Wealth Management Group, LLC, in Staten Island, N.Y. “This is a big undertaking. It’s important to have an intelligent financial plan in place, well in advance of opening, or you can really do great financial damage to yourself.”

Thinking of turning your great idea into a new business venture? Here, courtesy of the Financial Planning Association, are tips to help you lay the financial groundwork for long-term success:

• Make capital your top consideration.

“Make sure you have enough money to start and run the business. That’s the first step,” said Katz. On the business side, you’ll need enough capital reserves to cover one-time

start-up cost

s (for things like the space that will house the business, if you’re purchasing it, plus equipment, furniture, signage, supplies, licensing/permitting, etc.) as well as

ongoing expenses

(rent, if you didn’t purchase the space, payroll if you have employees, stock/supplies, utilities, insurance, marketing/promotion, etc.).

• Prioritize your personal monthly living expenses too.

“You need enough capital reserves to cover six months to a year’s worth of living expenses when you open up,” says Katz, “because you don’t know when you’ll get that first customer or when you’ll start making an income, and you’re household expenses aren’t going away.”

Take steps to protect your personal assets

, to minimize risk to you and your family if the business doesn’t pan out. Start by structuring the business such that its fortunes aren’t inextricably linked to yours and your family’s. LLC? Corporation? S Corporation? Katz suggests consulting an attorney with small business expertise for help evaluating the options.

To keep business and personal finance separate, he also recommends avoiding business loans for which you must use personal property (such as a home) as collateral. “At the end of the day, you’re personally responsible for paying back that money.”

Whenever possible, cover expenses with cash instead of taking on new debt.

The temptation to use credit to cover start-up and ongoing business expenses can be great. “But you don’t want to take on a lot of debt to start,” says Katz, “because you don’t know how much [money] you’re going to have coming in, and because the fees and costs associated with some types of loans and lines of credit can really kill you.”

• Be sure your business has adequate insurance coverage

that addresses the risks specific to your company. “You need insurance for things that could go wrong,” Katz asserts, “whether it’s someone slipping and falling outside your place of business, or someone getting hurt using a product you sold them.”

Get professional advice!

Besides an


to help choose a proper business structure, it’s wise to enlist an


with small business experience, and

a financial planner

for help coordinating personal and business finances. For strategic and practical guidance, also look to organizations such as SCORE and the US. Small Business Administration, along with state and local small business advocacy agencies. Many provide free services to entrepreneurs and their start-up ventures.