How to Prepare Financially for Starting a Business
May 26, 2020
You’re considering starting a business as an insurance agent with Farm Bureau. We understand that becoming your own boss is a major change, preceded by plenty of soul-searching and heart-to-hearts with loved ones — and that financial preparation is equally important. Here’s how you can prepare financially to set yourself up for success as a business owner.
Find an Accountant
If you’re not good with managing your finances, hire a professional. They will help you from day one, starting with keeping your personal money and your business money separate. Maintaining a business account will ensure you can stay on top of office expenditures (rent, supplies, payroll, taxes) without raiding your personal account. It also helps minimize legal liabilities, gives your business credibility and makes tax filings easier.
Plus, an accountant can help you determine the best ways to invest in your business. Paying rent on a co-working space, buying a new computer and hiring a part-time assistant may be smart investments, but an accountant can help you prioritize them.
Being burdened with debt payments will prevent you from investing in your business. Think critically about which debt can most impact your financial standing. Certain debt, such as a mortgage or student loan, typically come with low interest rates and can be paid off slowly without financial consequences. Large credit card balances, on the other hand, can incur hefty interest charges and should be minimized as much as possible before you start your business.
When you receive a regular paycheck, it’s normal to pay your monthly bills without giving them too much thought. Generally, people adjust their budget so that their take-home salary covers their needs and discretionary spending. A new business can mean unpredictable earnings as you get started, so you’ll need to be cautious about your expenses in order to reach long-term goals.
Add up what you currently spend for essentials (housing, utilities, food, transportation) and incidentals (entertainment, travel, memberships). Add items an employer may have covered that you’ll be shouldering yourself, such as health insurance or a retirement plan. If your initial projections about monthly earnings don’t cover these, lower your expenses as much as possible.
Build an Emergency Fund
Farm Bureau agents earn competitive commissions. At the end of the 2019 tax year, the top 50% of agents earned an average income of $323,119. Regardless, it’s important to be prepared for unanticipated costs. If you’re wondering how much money to save before starting a business, we recommend building an emergency fund that covers six months of household expenses. Chances are you’ll never need it, but knowing it’s there brings peace of mind.
Assess Your Assets
Farm Bureau doesn’t charge franchise fees or ask for a long-term financial commitment. Plus, you only need roughly $10,000 in liquid capital (such as cash at the bank and short-term investments like CDs, bonds, money market funds and mutual funds) to launch your business. Among the ongoing expenses to anticipate are insurance costs, office rent, computers and IT help, and staff compensation, all of which are controlled by you.
Take the time to build your liquidity before assuming business expenses, and you’ll be prepped for financial success as a Farm Bureau agent. As you start out as a Farm Bureau agent, you’ll work with your agency manager to develop a business plan so you can find success as an agent.
Start Your Business Today
Are you ready to start your business as an insurance agent with Farm Bureau? Contact us to learn more about getting started.