Freedom! Be your own boss! There are plenty of people out there that will tell you that starting your own business is the only way to go. You can set your own hours, and do what you are passionate about. And, sometimes those things happen.
Eventually, you might be able to set your own hours. Eventually, you’ll be able to make gobs of money doing what you are passionate about. Eventually. Until then, you’ll work long hours and probably not make much money doing it.
As with anything, starting a business can be a very risky proposition. If you decide to do it full time, you’ll have to leave your job. Doing it part time is a valid response to that, but then you’ll be working even longer hours than you already do. And, sometimes, your passion just isn’t profitable.
But, I’m not here to discourage you from trying. In fact, I’d like to do the opposite. But, if you’re going to start your own business, do it responsibly. Know ahead of time that you will likely be working long hours and making less money than you have planned for. And know ahead of time that a very large portion of new businesses (about 60%) fail within the first 5 years. I’d be willing to bet, however, that a very large portion of those failed businesses failed because the business owner didn’t do their research and didn’t know what they were getting themselves into.
But you will.
Can you afford the risk of starting a business? Let’s ask ourselves what we will need financially to devote ourselves to our new business. We’ll need to have a way to pay ourselves. You cannot count on the business to make enough revenue to pay yourself with. You’ll have to have a way to pay for start-up costs. It’s actually pretty expensive to start a business. To better understand where you stand financially, it’s wise to start by analyzing key financial performance indicators that will show you whether you’re on track and how sustainable your business model is. These indicators can provide valuable insights into your cash flow and profitability potential, helping you plan your next steps.
If you’re still in the planning phases, visit your local branch of the SBA, or find a local business incubator, and sit down with someone to discuss your business plan and the costs that will be associated with it. Those experts do this all the time, so they’ll have a much better understanding of what it will cost you to get running.
Once you have a firm idea of what it’s going to cost you, you’ve got to start saving up. Plan on saving at least a few months of salary and personal expenses, but I would shoot for at least 6-12 months. And if you can, start saving any extra so that you can put that towards business costs as they come up. Again, the business isn’t likely to pay for itself right away.
A solid savings plan will not only help you get your business started properly, it can also do a great deal towards keeping your business operating if necessary. And having an extra cushion to pay your own expenses will save your sanity while you expend all your energy into your business.
Shane Ede is a business teacher and personal finance blogger. He holds dual Bachelors degrees in education and computer sciences, as well as a Masters Degree in educational technology. Shane is passionate about personal finance, literacy and helping others master their money. When he isn’t enjoying live music, Shane likes spending time with family, barbeque and meteorology.