Setting up a business is an exciting time, if a little stressful. You need to think of a thousand things at once and it seems as if there is always something to organise or pay for. If you take care of your personal finances, then you have one less thing to worry about. Read this guide on how to budget for living costs when setting up a business.
Credit: fizkes / Shutterstock
Credit: fizkes / Shutterstock
Before You Start
You can start taking care of your living costs before you even start a business. If you have the luxury of drawing a paycheck from a company before you set up on your own, you can get prepared by paying some bills upfront. Paying a year of council tax or car insurance may not come cheap, but if you can manage this, you will probably save yourself over £100 per month once you have got your business up and running.
Plan Your Budget
Write down what money needs to be paid out every month and plan your budget accordingly. Allow yourself a little spending money as it is unrealistic not to and you will find it harder to stick to a budget if it is too strict.
You should plan to stick to your budget for the whole of your first year in business. Many entrepreneurs make the mistake of paying themselves a salary based on their turnover. However, you will still need to save money if you need to pay upfront for goods or materials, you have to wait for a client to pay you, or you have an unexpected bill. You should also remember to put some money aside to pay your tax when this is due as this can often give businesses a nasty shock.
Make Cutbacks
Once you have planned your budget, see if there is anywhere you can make cutbacks. For example, if you are going to start your business from home, you may not need to buy as much petrol as you had budgeted for. Shop around for things you do need to pay for, such as your food shopping or utility bills, as you could save quite a bit of money on these items if you compare prices.
Overestimate Business Costs
It may be that setting up your business is more costly than you thought it might be. As a general rule of thumb, you should budget your business costs and then add 10%. This will cover any unexpected bills or the likelihood of bills costing you more than you thought they might. Try to save as much of your profits in your first year so that you don’t get into debt. Unexpected expenses are one of the biggest reasons why so many businesses fail in their first year.
Don’t Plan Major Expenditure
You should stay away from paying any major expenses during the first 12 months of business. Not only will this give you the time to focus on your business, but you may find it difficult to budget for a major expenditure while you are setting up your business. The expensive holiday, new car, or house move can wait until your business is more stable and you can afford to pay yourself a regular income.
Plan for the Unexpected
It is unrealistic to think that you won’t receive an unexpected personal bill for your first year in business. Your car could go wrong, your boiler could break down and there are a multitude of other things that could happen that could leave you out of pocket. You may be tempted to take more money than you should out of your business to pay for these mishaps, but this could cause you problems further down the line.
It is reassuring to know that you have a line of credit open to you if things do go wrong, so keep some available credit on your credit card, don’t close your personal overdraft, and make sure that even if you can’t spend too much money, you have a facility available to you if you need to use it.
Obtaining Credit
If you need to obtain credit during your first year of trading, make sure it is only short-term. To give you some breathing space, Pay Day Loans can be a good place to start. Companies such as Payday UK will search the market for you to find the best deal available, so even if disaster strikes and you do need to find money in an emergency, you know you have the best repayment terms possible.
Setting up a business is always going to be financially challenging, especially in the first year of trading. However, once you have gotten over the initial period, you will hopefully find that your finances settle down and the rewards of being your own boss far exceed the difficulties of going it alone.
Back to Homepage
Back to Politics & Economics