he current economic climate is dismal for many Americans. According to recent figures from the Bureau of Labor Statistics, the national unemployment rate is about 9 percent, which equates to approximately 14 million people being unemployed.
No question-there is a need for an effective job creation strategy in this country. But we can also ask how we can help future generations and ourselves right now. One answer is entrepreneurship.
From my perspective as a financial expert, as well as a small business owner for two decades, here are the four most important things you can do to prepare financially to become an entrepreneur.
Be organized and current on your personal finances
You don't have to be debt-free, but you will be risking your family's livelihood if you start a business and your personal finances are not under control. Make sure you have minimal personal debt and that you pay bills on time.
The best-case scenario is to have a savings cushion that will cover living expenses for 12 months. For example, if the minimum cost to pay your personal bills monthly is $3,000, ideally you'll have $36,000 saved. With this reserve, if business revenue is lower than expected or clients are slow to pay, you'll have no need to fret.
Although it might be daunting to imagine having this much cash on hand, it's best to plan for the unexpected. Case in point, last year I fell and broke my kneecap. During the healing process and rehabilitation, I was unable to travel to speaking engagements for several months. If I hadn't had savings available, I would have had to incur debt to pay my bills.
I suggest having 12 months worth of business funds set aside as well. If it costs $2,000 each month to run your business, start off with $24,000 saved.
Every business is different and this scenario may not fit your vision or current circumstances. While amassing this amount of savings may be difficult, I would be remiss as a financial coach if I didn't tell you the cold, hard truth about what you could be facing.
Another way to prepare for the unexpected is to purchase disability insurance, though it can be costly.
Create a business plan
It doesn't have to be complex, but do your homework and put it in writing. Visit a library, bookstore or do an Internet search for examples. Your plan should include marketing strategies and 12-month financial projections. Strive to keep overhead low.
Know where your capital is coming from. You will likely need to use your own savings to start your business, or obtain loans or monetary gifts from friends and family, as financial institutions are less likely to lend to start-up businesses.
Don't be intimidated by business record-keeping
It is not rocket science. Use the same principle as personal finances: income minus expenses equals cash flow or profit. You don't need to have a high-priced accountant on retainer, but investing in one meeting can help ensure you use the best software program for your specific needs.
Investigate software programs such as Quicken 2011 Home and Business, which organizes your financial information by bringing your personal and home-based business accounts together, including bank, credit card, loan, 401(k) and investing accounts. Another is QuickBooks Pro 2011, which organizes essential business categories-such as vendors, customers and banking-together on the QuickBooks home page. Workflow arrows show you how tasks relate to each other, helping you decide what to do next.
The tax man cometh-be ready
As the old saying goes, the only things we can be sure of are death and taxes. Because many entrepreneurs are used to being employees and having taxes deducted before pay day, some make the mistake of not paying their estimated federal, state and city taxes, due each January, April, June and September. These taxes are based on your estimated business revenue, less appropriate deductions. Pay taxes on time to avoid penalties and interest payments.
A huge incentive for me to make my business successful was the overwhelming desire to not go back to working for anyone else. I liked being my own boss. That was 21 years ago.
These steps are just one aspect of my longevity in business. I also have faith and I believe in myself. I ask God for favor with everyone I come in contact with. And I always bless my clients-past, present, and future.
GLINDA BRIDGFORTH IS THE AUTHOR OF "GIRL, GET YOUR CREDIT STRAIGHT!" AND FOUNDER OF BRIDGFORTH FINANCIAL AND ASSOCIATES, LLC.