3 financial tips for new entrepreneurs

Carving out a place in the business world is not for the faint-hearted. But after months, if not years of planning, you started earning income as a new business owner. As an entrepreneur, you get the best of flexibility and earning potential, along with significant financial responsibilities.

Understanding your unique financial opportunity is key if you’ve recently started on your own or started a side hustle. When you know the financial rewards, opportunities, and risks of your new venture, they can work in your favor.

1. Take advantage of tax rules favorable to entrepreneurs
   Paying taxes is one of life’s necessities and a less desirable task than most. However, entrepreneurs often benefit from tax advantages in terms of deductions, depreciation and savings. Before you start setting aside money for quarterly tax payments, explore your options.

   Even if your business efforts are in addition to your main job, you can save for retirement beyond the usual limits. A more recent option, the Single 401(k), allows self-employed workers to save up to $57,000 per year. That’s more than double the amount allowed for traditional 401(k) plans, making retirement savings an achievable goal. Use your savings efforts to reduce or defer your tax liability as your contributions increase over time.

   Self-employed persons can also deduct various expenses related to the operation of their business. If you use space in your home solely for your business, you may be able to reduce your tax liability. Supplies, repairs, and technology needed for your operation are all great expenses to track and include in your business expenses. Review the latest Internal Revenue Service rules to find out what is allowed when filing.

2. Get ready for variable income
   Budgeting is essential for any professional, but business owners should be prepared for more variation than the average person. Contract-based work, billable hour limits, and the ability to choose your projects give you both flexibility and risk. Sometimes your workload will be overwhelming, while at other seasons it can be sparse. Do what you can now to prepare for the ups and downs of entrepreneurship.

   Try to project your annual revenue based on the customer relationships and contracts you have in place. Identify which contracts or agreements are on an ongoing basis or have fixed deadlines to determine their reliability. For each contract, track renewal specifications, identify opportunities to re-order work, or note whether the relationship has ended. If renewal is a possibility, contact the people responsible for renewing your contract well in advance of a decision. Ideally, you will be able to identify new opportunities and customer needs to help lock in future work.

   Once you have a good reading of your potential income, determine how much of your income to save or spend. Depending on your income, set aside some for estimated taxes, which many sole proprietors pay in quarterly installments. Plan for variable income by being careful about how much of your remaining income you use for personal expenses. Update your budget to account for slower months by reducing costs, signing up for budget billing, or paying premiums in installments.

3. Protect your health and property with insurance
   New business owners often take responsibility for expenses or choices traditionally made by a business employer. If you are on your own, you will need to think about how you will access essential health and personal protection insurance. Even if you are in relatively good health, health coverage is an essential need to be met. A single hospital visit can spell financial ruin, so think of your premiums as an investment in your future.

   Health insurance options can be reviewed on HealthCare.gov, and you can choose from state-specific coverage that meets your needs. If you are married, you may also be eligible to enroll in your spouse’s employer plan. Use health savings accounts if possible to save money for health-related expenses over time.

   Also, review life insurance, short-term and long-term disability insurance, and additional home coverage needed for your home office. As a sole proprietor, your income depends on you, so if you are ill or injured, disability insurance can support your income. If others are relying on you for income or for debt repayment, life insurance is non-negotiable. Properly sized home insurance can protect your investment in equipment, inventory and supplies, which often exceeds traditional residential coverage.

Cultivate your career on your own terms

As an entrepreneur, you set the rules. It can be refreshing, especially after working in the corporate world. As you lend your expertise to others, realize the opportunity you have to create a career that supports your aspirations.

Develop your own mission and vision for your individual business, just like a large organization does. You may not share this vision with others, but it is an exercise to help you focus on your overall goal. Flexibility, financial freedom, and more time spent doing the things you love are all major candidates here.

Once you’ve developed your career vision, use it to guide your work and your relationships with clients. With this vision in mind – and a stable financial foundation to support it – you will soon be cultivating the career of your dreams.

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