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March 23rd, 2015 by Jason M. Kaplan, Esq.

5 Financial Decisions Every Entrepreneur Must Make

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When it comes to starting a business, from the initial business plan to deciding how success will be determined, the future of you and your business depends on making wise financial decisions.  Most importantly, the most important and hardest hitting decisions will be financial in nature. Here are five financial decisions entrepreneurs need to make before and during the process of starting a business.

 

  1. Create a Separate Investment Account

In an interview aired on www.entrepreneur.com, Tony Robbins explains that the very first thing a business owner must do is become an investor by taking even a very small percentage off the top and automatically putting it into a separate investment account. He quotes “The first step is tap the power of compounding by becoming an investor today … it’s gonna make you rich beyond your wildest dreams over the long term.” Everyone can benefit from that advice, business owner or not. But for entrepreneurs, that investment can be the saving grace when your business suffers pitfalls or the effects of a recession.

 

  1. Effectively Raising Capital for the Company’s Start-up

There are several ways you can raise capital for your company’s startup. You can use your own personal finances along with investments from friends and family if they are amenable, and research government grant and loan programs. There is also crowdfunding, which can give you access to capital with fewer strings attached compared to what you would find with private investors. Private investors, or angel investors, are another option. Many times they are entrepreneurs themselves, but be aware that some investment deals include allowing the investor(s) to be involved in decision making regarding the company. If you have assets you can use as collateral, a private equity loan or open line of credit from your bank could be another viable option. Investigate your options and give them a great deal of consideration before making a decision.

 

  1. Plan a Solid Marketing and Sales Strategy

You can have the greatest new business of all time, but if you don’t have a clear idea of how you will get your product into the public’s eye and get people to pay you for it, your business is not going to succeed. Whether your product is a tangible item or a service you provide, you need to know how you are going to present it, who you are going to present it to, and how much you are going to charge for it. Remember, pricing needs to cover not only the cost of materials, but also overhead expenses and the profit ratio.

 

  1. Have a Backup Plan

Unfortunately, the best laid plans don’t always run as smoothly as we would like. Think ahead to what types of problems your business may encounter and what you will do if you do run into obstacles. If you can, investigate other businesses similar to your own which did not make it and see if you can decipher what they did wrong so you can benefit from their mistakes.

 

  1. Choosing the Right Legal Structure

The legal structure for your business is the first of the financial decisions you will need to make. The nature of your business and the projected size of it will come into play when making this decision. The legal structure you choose can affect the ease with which you can raise capital, as well as sell the business if you should at some time decide to do so. More complicated legal structures require more paperwork and have more complex tax requirements, but your decision needs to be made based on what is actually appropriate for your business, not on what is easier.

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