Table Of ContentThe
Entrepreneur’s
Guide to
Personal
Finance
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The Entrepreneur’s Guide to Personal Finance
Prosperity and success are what many entrepreneurs envision when
they start their own business. However, it takes more than a vision for
your business to succeed. Capital, the money needed to start, operate,
and grow a business is important, as is managing your personal fnances
while balancing the demands of your business. Fortunately, you have
options when it comes to funding your business and the opportunity to
gain the skills you need to effectively manage your fnances both at work
and at home.
This guide on personal fnance for the small business owner was made
possible through a relationship with Money Management International
(MMI) in partnership with the Citi Foundation. In this guide, we hope to
provide you with viable ways to turn your ideas into a plan, market and
fnance your business, and become even more capable of succeeding at
your business ventures.
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In this eBook, we’ll explore how to
plan your business, which will give
you direction and help relieve some of
your fears about the risks of becoming
an entrepreneur. You will also spend
some time learning about personal
fnance and how your personal fnancial
situation relates to securing a loan for
your business.
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Table of Contents
Chapter one: Is small business ownership right for you?
Chapter two: Your business model
Chapter three: Your idea and testing the market
Chapter four: Finances
Chapter fve: Business structure and taxes
Additional Resources
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The Entrpun’r
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Is small business ownership right for you?
What ideas do you have about small business ownership? Does it sound risky? Do you think of the famous Bachman-Turner Overdrive
lyrics: “It’s the work that we avoid, and we’re all self-employed; we love to work at nothing all day...”?
Rock songs aside, the truth is that owning a business is work. Small business owners typically wear many hats. Take a freelance photog-
rapher, for example. It may seem that he just makes a living by snapping photos, but he’s also responsible for marketing, sales, website
design, invoicing, and more. Even if he hires out some of the work to subcontractors, he is still ultimately responsible for the results, as
his livelihood depends on them.
In the article “How to Decide if Entrepreneurship is Right for You,” Colleen DeBaise describes the commitment entrepreneurs must
make to their business as follows:
“Starting a business is a lot like becoming a parent. Not only do you have to prepare for your start-up emotionally and fnancially, but
you have to be committed to its constant needs until it’s mature enough to hum along on its own. And even then (much like a child) it
will always need you in some capacity, no matter how old it gets.”
Just as with anything else, there are pros and cons to entrepreneurship, and you need to take some time to decide if owning a small
business is right for you.
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Owning a small business is more interesting work. Presumably you want to start a
business because it’s something about which you’re passionate. This is very appealing for people
who are stuck in a job that they hate or that simply doesn’t challenge them.
Entrepreneurs can set their own schedules. Depending on the type of business you want
to start, you can enjoy a more fexible schedule than an employee.
Entrepreneurs work harder, but they also directly beneft. While an entrepreneur might
have to put in 12-hour workdays, some salaried employees start to wonder if being salaried is
really that much of a beneft when they’re working late several days a month — for the same
amount of money. With the small business, if you decide to burn the midnight oil to ship out
another order, your bank account sees the results.
Unlimited earnings and growth potential. The U.S. Small Business Administration reports
that on average, self-employed people earn higher incomes than employees. It’s important to
note, however, that there’s a wider variance in incomes among the self-employed, and earnings
To start, let’s examine are lower at frst, then grow and surpass the income of traditional employees.
how being a small Greater potential rewards come with more risk. According to the U.S. Small Business
Administration, roughly 50 percent of small businesses fail within the frst fve years, typically
business owner compares
for reasons like insuffcient capital (money), poor inventory management, poor credit arrange-
ments, and personal use of business funds. While nothing, including a day job, is secure, small
with being an employee
business owners have to be prepared to handle a variable income, meaning that there might be
some months when you’re making a lot more money than others. Planning is critical to keep your
business running smoothly.
There are no guarantees, either as a salaried employee or as a small business owner, but there are
ways to increase your chances of succeeding as an entrepreneur through careful planning.
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Turning your ideas into a business plan Have you thought about what kind of business
you want to start? Chances are, you have
a few ideas, but before you get too much
further, let’s look at the components of a good
business plan.
The following ten questions are adapted from
the book StartupNation: Open for Business and
will help you to formulate your plan:
What’s your business idea?
What model suits you best?
What’s your role going to be?
Who’s on your team?
Does your idea address a need?
What’s different about what you offer?
Is there a market for your product or
service?
How much are customers willing to pay?
How much money do you need to get
started?
How will you get start-up funds?
You can probably answer the frst question, or
at least jot down some ideas. Keep a dedicated
fle or notebook to answer these questions as
you read through this eBook. Also, know that
your plan will be a living, breathing document
that you’ll edit as you develop your business.
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There is no such thing as a one-size-fts-all plan. From Inc.com:
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“There are scores of websites these days on the Internet o
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that offer to sell business plans for $20 or more, designed
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to let you enter your company name and specifcs and
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generate a plan. These are about as valuable as the paper
h
e
they’re printed on…The reason is that each business is
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unique and, therefore, each business plan should be a
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F
unique document to be truly worthwhile to the business.”
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Read the full article, “How to Write a Great Business Plan,” on Inc.com.
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theCiFoCundo
Your business model
What model suits you best?
Before we get into specifc business models, think about how much time you want to commit to your business.
Will it be a part-time gig, a full-time career, or something you do only on the weekends or during holidays?
For example, a stay-at-home-parent might have some free time as the kids get older, but not enough to commit
to a full-time business, so part-time is more practical. A full-time employee might like his or her job, but wants to
make extra cash before the holidays selling handmade ornaments, so the business would be seasonal.
Ramit Sethi, New York Times bestselling author of I Will Teach You To Be Rich and the blog of the same name,
writes:
“Think of earning money as an opportunity to make a series of small bets in order to rapidly fnd one that’s
proftable. If you want to scale up and go full-time, great! But most people don’t ever need to do that. It’s nice
making extra money on the side and giving yourself more opportunities to do the things you love.”
If you want to make your business your primary focus, it’s a good idea to start it as a part-time business in the
beginning, then transition it to full-time once you have enough business to support you. This will allow you to
test your ideas before making the leap to full-time.
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Business models: Pros and Cons Thanks to technology, there are several business models available to
entrepreneurs today. Consider the following models, along with the
pros and cons of each:
Home-based and/or eCommerce. Traditional brick-and-mortar.
A home-based business is run from your house and typically makes use of technology for These businesses include retail stores, offces, or any other location that involves buying,
day-to-day operations. eCommerce businesses sell products or services online through a renting, or using real estate outside of the home.
website, either their own or an established one like eBay or Etsy.
Pros: Cons: Pros: Cons:
Lower start-up and operation costs; Local government restrictions might not More social interaction; can attract Greater risks and higher overhead costs
can ft work around life commitments; allow customer traffc; home distractions walk-in customers who might for rent or purchase of space; requires
Web-based businesses can operate on can impede work; work can be isolating; otherwise not know about your full-time commitment to ready the
a global levelsellers on eBay will have may need to outsource some work if business; minimizes distractions with space; may require hiring and managing
to compete with established sellers. you’re a one-person operation; online busi- a dedicated work space. employees; may require initial inventory
nesses might face a lot of competition, for purchase.
example, new sellers on eBay will have to
compete with established sellers.
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