It’s important advice worth following.
- Many small businesses take a long time to turn a profit.
- It’s important to have solid cash reserves when you start a business, so you can focus on your venture without worrying about how to pay the bills.
There are plenty of good reasons to start your own business. For one thing, being your own boss means getting to call the shots and do things your way. And you might also land in a position where you can boost your income substantially by running your own business rather than being an employee of someone else’s.
Plus, as a small business owner, you may have different opportunities to give back to your community. That’s a definite perk if that’s something that’s important to you.
But if you’re going to start a small business, it’s essential that you go in with plenty of cash reserves, says financial guru Suze Orman. Doing so could not only take stress off of your plate, but also increase your chances of success.
Solid savings are essential
Orman is a big fan of having emergency savings. And in recent years, she’s upped her recommendation in that regard by suggesting that everyone try to save enough money to cover eight to 12 months of living costs.
But if you’re going to be starting a business, you’ll definitely need a very robust savings account balance, Orman insists. The reason? It can take a lot of time for a new business to turn a profit. And so you’ll need a way to pay your bills until that revenue starts rolling in.
But that’s not the only reason to come into business ownership with lots of savings. Orman says that building up a strong emergency fund could help you better focus on running your business itself.
Marketwatch has quoted Orman as saying, “Launching a business requires 110% of your attention and energy. You literally can’t afford to be distracted by worrying about how you will pay your bills in the initial months as you build your business. Having savings that can cover at least one year of living expenses is my general advice. I would encourage would-be entrepreneurs to try and start with even a few more months of savings.”
Of course, building up that level of cash reserves isn’t easy — especially if you’re also spending money on equipment, licenses, and other items to get your business going. But it pays to take Orman’s advice here, even if that means waiting a bit longer to put your business into place.
If you go in with a solid level of savings, you’ll be able to dedicate the mental energy you need to your venture. And you won’t feel compelled to take on side jobs or other gigs just to cover your rent or put food on the table.
Advice worth following
Data from the U.S. Bureau of Labor Statistics reveals that around 20% of new businesses fail within their first two years of being open. If you don’t want to be part of that statistic, do your best to build up savings before venturing out on your own. That way, you can focus your efforts on drawing in customers for your business without having to spend time strategizing about paying your basic living costs.