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Starting a Business: Can You Afford the Risk?

August 13, 2010 By Shane Ede 2 Comments

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

I started this blog to share what I know and what I was learning about personal finance. Along the way I’ve met and found many blogging friends. Please feel free to connect with me on the Beating Broke accounts: Twitter and Facebook.

You can also connect with me personally at Novelnaut, Thatedeguy, Shane Ede, and my personal Twitter.

www.beatingbroke.com

Filed Under: Saving, ShareMe Tagged With: business, entrepreneur, incubator, risk, savings, small business

My Wife Quit Her Job: One Year Later

May 7, 2010 By Shane Ede 10 Comments

If you’d like to catch up on this on-going series, start here, then go here, and here.  Then come back here and read on.

There, now that you’re caught up, you know that my wife quit her job about a year ago.  Sometime around last August, she and two of her friends (and ex-coworkers) decided to start a business together.  And as of the last update, you knew that the business was going well.

Now, the business is still doing well.  Better than most of us expected, I think.  On May 1st, they began working with the clients that the certification that they picked up allowed them to.  Because of that, all three of them should be seeing full time hours fairly soon.  My wife has been working full time and then some for several months, but everyone else has been relegated to doing most of the office work (that is unpaid).  That’s good for us, but wasn’t all that great for everyone else, or for business partner morale.  Unfortunately, much of what my wife does is limited to people with certain qualifications.  Qualifications that only my wife has.  And, until the business is able to help pay for the others to get those qualifications, she’s got to do it.  With the new program that they just started, that should become more of a possibility towards the end of the year.  Of course, if the new program continues to do well, it might not be something that needs doing anyways.

As I expected, due to the added insurance costs, and some increases in withholding for ChildCare, my checks are much smaller than they were in 2009.  We had planned on that, and since a lot of the extra is pre-tax, it will help us in the long run.  It is a bit sad to see your net income be less than 50% of your gross income though.  To try and compensate, I’ve re-doubled my efforts here and at my other websites to try and make up some of the difference.  Income is increasing there, but it’s a very slow process, and it has yet to be enough to make any significant difference anywhere.

Due to my wife’s increased work load, we’ve been able to keep up with our bills and haven’t had any major issues.  It hasn’t been good enough for us to return to aggressive debt payments, but we haven’t added much new debt either.  That’s a win if you ask me.

The rest of the year looks pretty good.  My wife’s business looks like it will continue to grow and, with any luck, so will my side endeavors.  I’m hoping that we might even be able to start our debt snowball rolling again.

Shane Ede

I started this blog to share what I know and what I was learning about personal finance. Along the way I’ve met and found many blogging friends. Please feel free to connect with me on the Beating Broke accounts: Twitter and Facebook.

You can also connect with me personally at Novelnaut, Thatedeguy, Shane Ede, and my personal Twitter.

www.beatingbroke.com

Filed Under: Married Money, ShareMe, The Beating Broke Story Tagged With: business, childcare, entrepreneur, small business, wife, wife quit her job

My Wife Quit Her Job: End of Year Update

December 30, 2009 By Shane Ede Leave a Comment

Last update, I told you that the COBRA health insurance plan premium went through the roof and we were deciding whether to continue paying for it, or to switch over to the plan that I get at work.  In the end, we decided to remain on the COBRA plan.  The difference was about $350 a month, but we figured that if we had only one or two medical mishaps, it would easily pay for itself with the 100% coverage.  And, as luck would have it, it turned out to be a good idea.  Both my wife and I ended up having issues that required several weeks of physical therapy.  Hers stems from an accident she had a few years back that seems to have thrown a few things off.  Nothing some pt and a pair of orthotics won’t fix.  Mine is from my football days.  Arguably, not completely necessary, but was something that would need to be fixed one way or the other, so decided to get it taken care of.  Then, to make our decision look even smarter, my wife fell in the ice and snow yesterday and severely sprained her ankle and knee and prompted a visit to the ER.  We got a nice new pair of crutches and what will likely be a very expensive pair of athletic wraps.  Of course, all paid for by our insurance.  The extra money has easily paid for itself.  But, that all ends on the 1st, so we’re switching back to the coverage that I get at work.

The business that my wife and her friends started continues to do well.  They received a very important certification from the state that will allow them to pick up another line of business and expand even further.  My wife continues to be the only one getting a regular paycheck from the company, but with this new certification, that will likely change very soon.  Luckily, the people that she’s working with are both very qualified for the business that they are in and have plenty of experience (my wife does to) so they don’t have much in the way of learning curves for the actual service that they provide.  Their biggest learning curve has been the actual running of the business.  They were smart and got a lawyer and an accountant right away though, so they’ve had excellent guidance along the way.

Also, I did receive a small raise this year which should help.  However, between the insurance and some increases in medical flex and childcare flex, my checks will likely be smaller than they were in 2009.  Most of that should come back through the flex accounts.  Tax free money for the win.  Especially on things like childcare that you’re going to spend money on anyways!

Shane Ede

I started this blog to share what I know and what I was learning about personal finance. Along the way I’ve met and found many blogging friends. Please feel free to connect with me on the Beating Broke accounts: Twitter and Facebook.

You can also connect with me personally at Novelnaut, Thatedeguy, Shane Ede, and my personal Twitter.

www.beatingbroke.com

Filed Under: Insurance, Married Money, ShareMe, The Beating Broke Story Tagged With: beating broke, business, business startup, jobs, my wife quit her job, small business

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