How to Build an Entrepreneur’s Safety Net

One of the biggest risks of being an entrepreneur is being able to financially support yourself while starting a business.  This can be incredibly difficult to do because, when you’re starting up, cash flow may be tight or non-existent.  Furthermore, if there is any cash flow, you will be torn with the choice of using it for yourself or reinvesting it into your business.  In the article How 5 Top Bloggers Made the Financial Jump to Self Employment, you can easily see how a safety net is important for entrepreneurs.  Here are the top things you need to focus on BEFORE starting your venture.

Emergency Fund

If you’re going to start your own business, it is essential that you have a solid emergency fund.  Most financial pundits call for 6 months emergency funds, but I think that 8 months, or even 12 months is probably better for an entrepreneur.  The thing is, you need to make sure that you have enough cash on hand to support yourself should you not get the cash flow you need from your business.  Building a business takes time, but you need to have food and shelter to survive.

Insurance

If you are your business, and your business is your only income, you need to have insurance.  First, you need to have disability insurance.  Disability insurance will provide you up to 60% or more of your income should you become unable to work because of serious injury or illness.  This little bit of protection can help you should something happen.  In a start-up, this can be invaluable.

The second type of insurance to consider is life insurance, especially if you have a family that depends on your income.  Should you die, you want to make sure that your family is taken care of.  Many businesses also take out policies on their owners, because the cost to the business from losing their top executive can be large.

Plan For The Last Resort

Launching a start-up is never easy.  If necessary, you should consider the fact that you may need to take a second job to boost your income to make ends meet.  Of, if you’re married, you can have your spouse work and provide some basics like insurance and health care.  Either way, you need to be accepting of the fact that you may need to boost your income beyond what your start up can offer you.