Worried about layoffs? Get financially fit to start your own business.

The news is filled with daily reports of big corporations laying people off. If you’re concerned about your own job stability, now could be the perfect time to start your own business. But there are a few steps you need to take while you’re still employed to get financially fit for startup. 

Check your credit score. You can access your credit report and score for free on iBank at this link: (http://www.truecredit.com/entry/allTUCMOrder.jsp?cb=ibank.) If you find inaccurate or outdated information, contact the credit bureau to have it corrected. 

Get a grip on your credit cards. You need some cards to establish a good credit score, but don’t go overboard. The number of cards you have is not as important as the amount of debt on each. In general, experts advise against exceeding 50 percent of your credit limit on any one card. And it’s better to keep the balance at 25 to 30 percent of the limit, max. Having 15 cards that are paid off in full each month is better than having two cards that are maxed out. 

Set a personal budget. When you start a business, you ideally want 6 months of living expenses on hand so you won’t have to take cash out of the business. Go over your budget with a fine-toothed comb. Now is the time to eliminate unnecessary expenses, like that daily latte or subscriptions to magazines you don’t read. 

Pay down debt and start saving. When you start a business, having as little debt and as much cash as possible will make it easier to get financing. Budget a certain amount each month to put toward debt. Start with the credit card that has the highest interest rate. Suppose you can pay $300 a month toward that card. Keep doing that until you have paid it off; then, apply that $300 to the card with the next highest interest rate. 

Add up your assets. Lenders will want to see that you’ve put as much money of your own money as possible into your business. If you don’t feel confident enough of its success to risk your money, why should they? Assets include real estate, stocks or other investments, savings, the cash value of insurance policies, collectibles (such as antiques or art), or valuable “toys” such as a boat. Perhaps some could be sold to raise money for your business; others might make good collateral for a loan. 

Apply for a home equity line of credit (HELOC). The time to get a HELOC is while you’re still employed, so if you’re worried about layoffs, act now. You shouldn’t tap into your HELOC unless you absolutely have to, but if you are laid off and need funds, it can be a good emergency source of money for small business finance.  

Get familiar with potential financing sources. Despite all the talk about the small business credit crunch, entrepreneurs are still getting money from sources including community banks, credit unions and angel investors. Start to build relationships with your local bankers, chamber of commerce and other business groups, as well as business owners in the industry you plan to launch in. Also look around www.iBank.com to get a sense of the variety of sources available.  

Write your business plan. Essential to getting small business financing, a business plan also helps you work out any kinks in your business idea. For more specifics on writing a business plan, check out my post elsewhere on this blog.  

If you are laid off, don’t just sign the paperwork your employer offers without thinking about it. You may be able to negotiate a better deal. See if your employer will agree to pay your COBRA health insurance coverage for six, nine or 12 months. Many employers pay for career transition services; if there is a specific training program that would help you start your new business, ask if they will pay for that instead.  

Don’t burn bridges with your former employer. Depending on what type of business you plan to start, they could end up being your first client. Or perhaps they will refer customers to you or act as a reference. Leaving on a positive note will pay off in the long run. look into working capital loans

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