Finance & Grow Your New Business. Angie Mohr

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СКАЧАТЬ owner, having adequate insurance will become vitally important. Let’s have a look at the major categories of insurance that you should consider.

      Life insurance

      What will happen when you die? Basically, anyone who is dependent upon you bringing in income will no longer have that source of income. This will be especially important if you have a spouse and children. The family home must still be maintained and the children’s education accounts must still be funded. It may be impossible for your spouse to carry the burden alone when you are gone. If this is the case, it’s imperative that you have life insurance to replace your lost income, at least until the children are grown and self-sufficient. If, however, you are single and have no other dependents, life insurance is not a necessity and the premiums that you would otherwise pay might be better off in an investment account.

      There are many types of life insurance, some of which have an investment component to them. A discussion of the options available is beyond the scope of this book and should be discussed with your accountant or independent financial adviser.

      How much life insurance do you need? You should be able to review your current spending budget and compare it to the after-tax income of your spouse (remember that he or she will most likely keep working). The shortfall between the expenses and the income will need to be funded through life insurance. Another alternative is to insure for the amount of your debts, including your mortgage. Then, upon your death, your spouse will only have to pay ongoing living expenses and not have any debt payments.

      Mortgage insurance

      Mortgage insurance will pay off the outstanding balance of your mortgage when you die. However, the premiums for most policies are set based on the amount owing when the policy is set up. So, for example, you may owe $150,000 now on your mortgage and will pay premiums based on that. In ten years, when you die, you may only owe $10,000 and that would be the amount paid out on the policy. In general, the premiums for mortgage insurance tend to be high compared to the payout. Mortgage insurance can be replaced with additional life insurance for a much lower cost in many cases, and should be discussed with your accountant or independent financial planner.

      Property and casualty insurance

      This type of insurance protects you from the loss of your belongings, such as your house and its contents, your car, and any other physical assets you may have. Many property and casualty policies also contain a liability component, so that, for example, if someone slips on the ice and breaks a leg on your front steps, your insurance will pay.

      Your insurance company will have standards as to how much insurance they will provide based on their assessed market value of your assets. You should ensure, though, that what will be paid out in insurance will at least cover any debt secured by that asset. For example, let’s say you have a car on which you are making monthly payments. The insured value of the car is $6,000 but you still owe $7,500 on it. If the car is totaled, the financing company will immediately call the loan and you will have to dig up the excess $1,500 from somewhere to cover it.

      When assessing whether your belongings are adequately covered by property and casualty insurance, make sure that you have considered any special collections you might own, such as stamps, art, hockey cards, or antiques. These types of assets are generally not covered under the standard policy and you may have to take out a special rider on them.

      Health insurance

      Health insurance is one area in which the majority of people are under-insured. It may be tempting to just assume that you will be healthy until you retire, but that is dangerous thinking. If your health fails, your ability to earn income may disappear, along with your plans for retirement.

      As a small-business owner, health insurance is essential as you will not be able to rely on any employer- or government-funded health plans. There are two major coverages that you need to consider. The first is that you will not have your income any longer. As a small-business owner, you will have to hire someone to do the work that you once did or you may even have to close the doors, but either way, you will have to replace your former income. The second is that you may have ongoing medical and long-term care expenses in the future. For example, you may have to hire a private care nurse to attend to your medical needs.

      There are many forms of health insurance. Some include coverage for drugs and dental expenses, some pay out a lump sum when you are diagnosed with a critical illness, and some provide ongoing payments for your lifetime. Discuss coverage with your financial adviser or insurance specialist to make sure that you will be able to continue to meet your personal and business financial goals in the event of serious illness.

      Chapter Summary

      • Before you jump into the role of business owner, it’s important to first get your personal finances in shape.

      • Reviewing your personal financial and retirement goals will help when you plan your business to ensure that all of your goals are in alignment.

      • Getting your personal debt under control will help with your borrowing capacity in your business and will help you to manage your business debt more effectively.

      • Having adequate insurance on all of your assets will help you to financially weather any catastrophic event.

      5

      Setting Your Business Goals

      What do you want from your business? Money? Status? Security? We look at the various goals of entrepreneurs and how to align your plan with your goals.

      Introduction

      We have spent considerable time so far discussing the personal side of your financial life because it forms a critical pillar to the success of your business. In this chapter, we begin to look at your business goals and how to set up your initial business plan.

      By this point, you have considered what type of business you want to start and why you want to be an entrepreneur (Chapter 1). You have also thought about which opportunity will be best for you: Starting a business from scratch or buying an existing business (Chapter 3).

      Now, you will need to start planning your business, including what your projected cash flows will be, when you will start to turn a profit, and how you will get out of your business when you’re ready to do other things.

      We will start by talking about money.

      Chasing the Almighty Buck

      Money may not be the only reason that you have decided to start up a small business. In fact, entrepreneurs tend to have an inborn need to create and build empires that reflect who they are and that can be passed on to future generations. But starting and managing a business is a risky venture and with risk comes the opportunity for reward.

      Conventional wisdom says that you should sacrifice short-term monetary rewards for long-term gain. Many small-business owners not only do not think about getting a return on the money they have invested into their business, they don’t even take a salary for the labor they invest. “I’ll start taking a salary later when the business can СКАЧАТЬ