So you want to work for yourself and the timing just feels so right. It’s Friday, you’ve had one of those weeks (which seems to be happening more and more frequently) you feel underutilized and not the slightest bit appreciated. To heck with you boss, I’m doing this. I’m going to start my own business. I’ll be so much better off…… more free time, less stress, more money……
Well you just hold on there a moment fella. Yes, you do have the potential for all of these things. It will take time and it isn’t going to be a walk in the park to get there.
So your boss stresses you out. How are you going to feel when the customers are not beating down your door? How are you going to feel when the bills are piling up and vendors are calling you for payment?
You don’t feel appreciated. How will the spouse and kids feel when you are pulling yet another 14 hour day? You’re “working” again this weekend. Only it’s not paid work….. it’s a training event because you are trying to keep costs low and learn how to do everything yourself. The ever-so supportive spouse can soon get a little less supportive at having to spend the fifth weekend in a row alone.
And I guess that answers the more free time question as well right.
The answer? A solid plan for how you are going to manage you finances in those crucial first few years is a pretty good start. A financial plan tied with a business plan is a must for anyone looking to build own their own business. Humm a financial plan. What is that going to entail then? Let’s start with:
- Cash flow projections
- Profitability Analysis for your product(s) or services
- Household budget…… wait, what HOUSEHOLD BUDGET? What does that have to do with my business?
Actually, I’m going to suggest you do your household budget first. Without knowing how much disposable income you require how are you going to set a plan as to how much money you need to make. (You’ll get to the millions you want to make next year but this year we are going to have to tighten the belt a little.)
Cash flow projections are going to help you make decisions such as when to spend and when to save. It will also help you decide when you can actually start paying yourself. Because as you will soon find out, one of the best things you can do to grow your business is to plow all the money you do make, back into the business. Easy right? Err well no as it happens because most of us can not live on love alone and actually need to eat to survive. So you’re also going to:
4. Start saving!
Okay well how much am I going to need to save? Have any of you read those articles where you are advised to save for a years’ worth of expenses before you open your own business <insert eye roll here>. It isn’t actually bad advice given that there is a good chance it will take at least that long (and probably longer) to get your company generating some steady cash flow. However for 90% of small business owners it’s completely impractical. Everywhere you will hear stories of how “I managed to boot strap it and launched with $100 in my pocket”. Good for you but I’m sure life wasn’t a bed of roses during that time either. The honest answer is it depends on your business model. Not a very sexy answer, I know. So here is what I would suggest. Plan to have $5,000 in addition for any cost of goods you have to purchase. And my reason for $5,000 is (the below numbers are approximate):
$200 to register your company name and get a business licence (here in BC)
$500-800 for a quality website
$500 in marketing and promotional materials
$1,200 in financial and business assistance for the first year (this is a conservative amount seeing as it includes monthly assistance and tax filing at the end of the year)
$200 in networking expenses for the first year (even if you attend those free networking events there is still the mandatory cost of food at the event)
Okay so this doesn’t come to $5,000 (hey I’m in finance, I can count!) however these figures are conservative and don’t include the various insurance requirements you may have, which are so variable I didn’t bother trying to guess them for you. Or the coffee’s, lunches, dinners you will have with “prospective” clients that don’t translate into clients. Not forgetting the other “office and admin” bits you are going to have to shell out for….. professional photographs, business cards, professional cloths that aren’t your dad’s hand-me-downs (and clothing isn’t even an allowable expense for the most part… sorry!). The truth of the matter is you have to spend money to grow your business and you can’t rely on your business generating that cash early on. Have it ready before hand.
So with your financial plans, your business plan, your household budget and $5k cash in your pocket…. what are you waiting for? Go get ’em tiger! The world is out there just waiting to be conquered!