Personal Financial Stability

• Reduce your debt. You have heard it before, right? Do it!
• Make sure you have adequate insurance including health, long term disability, auto, and home.
• Get serious about your retirement planning! Set aside 10-15% of your gross income for this purpose. Use tax deferred accounts to allow your money to grow through compound interest.
• Reduce spending.
• Build up your cash reserves. Most experts recommend that your reserves should be able to cover your basic living expenses for 3-6 months.

Assessing your personal financial stability is crucial because most small business owners rely heavily upon their own personal assets.

Start by listing your personal financial goals, and assess where you are in terms of those goals. How much retirement planning, house planning, and educational planning (your children’s) have you done? What do these figures look like and are they in line with your goals?

Next, measure your net worth. What is the difference between your assets and debts? If your debts are more or if your assets are only slightly more than your debts, you may not be ready to start your own business where you will probably need to do a major part of the financing yourself.

Starting up a business can be a tremendous strain on your personal finances. It can take six months or more before your new venture is profit able and can provide financial support for you and your family. Before going into business it is always wise to get your finances in order.

Write a monthly household budget that accounts for your income and your household expenses. Be as conservative as possible, because it is vital to your success that you have the resources to maintain your household expenses while your business is growing. Any strain on your personal budget will put the financial success of your business at risk.

It is also a good idea to check your personal credit situation. Too often, entrepreneurs think that their business credit and personal credit are separate. A business' credit is built upon the owner's personal credit. Because you have not established a business credit history, lenders and suppliers will use your personal credit history to determine your terms of credit.

Your credit report determines how you will be perceived by potential lenders and suppliers. You should know what appears on your credit report because you may find errors that you will want to have corrected.

To get a copy of your credit report, refer to one of the three major credit bureaus:

• Equifax
• Experian
• Trans Union

Understanding Good and Bad Debt:

• Good debt -- long term investments such as a home, education, or a small business
• Bad debt -- consumer purchases such as clothing, a vacation, or a car