Jumping Into Business? Get a Parachute

If you are unemployed, semi-retired, or just ready to get out of the corporate rat-race, you may be thinking about starting a business of your own.  Maybe you are thinking about a home based business or a franchise or a simple store-front or online business.  But before you take that leap, there are some critical things you will need to protect you and your family. In other words, before you jump into that business, you need a parachute.

Insurance. You will need insurance, primarily health insurance.  If your spouse works, or if you have health insurance as a retiree or from some other source, you have this covered. If not, you will need to find insurance. You can buy health insurance and consider it a business expense, but check with a tax adviser if you have employees; you will probably have to include them in the policy. Disability insurance that pays if you are ill or out of work for some time seems like a luxury, but it can mean the difference between keeping the business or shutting down.

Emergency Back-up People. Having backups is important.  I’m taking about back-ups at home and at work.  If you have children, how will you handle the inevitable daily issues – sick children, after-school activities, household chores?  At work, do you have someone to keep your business going if you are ill or if you need to leave for a family emergency?  You can’t wait until the emergency happens to figure this stuff out; you need to do it before you start your business.

Cash in the Bank. Most small business advisers suggest you have at least six months’ household expense money in the bank, readily accessible, during your start-up.  Every family should have an emergency fund anyway, but if you are considering starting a small business, you definitely need it.  You can’t count on taking money from your business to pay personal expenses during the first year.  What if your car breaks down and your business is short this month?  Even if you have a spouse who works or other income, having an emergency fund is a necessity.

What If You Don’t Have These Parachutes? You can still open your business, but you are extremely vulnerable.  Getting a big credit line from a bank can help (you can pay for insurance needs and to cover emergencies, and you can hire help for home emergencies, but good luck getting that big bank loan.  In these tough times, small businesses are lucky to get any loan at all to start a business.  Getting these parachutes can also help you sleep at night, and that is a big benefit when you have so many issues to consider in starting your business.

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