Do you want to start your own business? Many people dream of being their own boss. It’s an attractive alternative to the long commutes, unappreciative supervisors, lack of advancement and nosy-throw-you-under-the-bus-co-workers many have to deal with.
Let’s face it, working for a corporation doesn’t exactly have the same allure it once had.
Gone are the pensions and retiree health benefits right along with job security. Even the most hard-working individuals are not safe from the chopping block.
So of course, self-employment seems like a reasonable alternative.
The question then becomes: Can you afford to be self-employed?
Can You Afford To Start Your Own Business
I get it because I’ve been there.
Self-employment was a great strategy for me. I started my cleaning company and within the first year, I was already grossing over six figures. By the end of the second year, I was pulling in over 350K. I had a full array of staff, and I was more secure than I had ever been working for someone else.
I was lucky. Most people don’t have the kind of success I had in so short a period.
Many struggle and most end up closing up their businesses within the first five years because they can’t make a go of it. In the end, their “Plan B” leaves them with more debt and less financial security than when they started.
Don’t Do What I Did
I started a cleaning business because I was an excellent cleaner, not because I had some great passion for cleaning toilets. I had no entrepreneurial skills either. Oh, and I had no financial plan and was seriously in debt.
None of those make for the way to start a business, so I encourage you – don’t do what I did.
Instead, consider the following:
1. What Are You Passionate About?
For any company to be successful, you must have a passion for what you’re about to embark on. Thirteen years later and I almost despise cleaning. Don’t get me wrong, the cleaning business has treated me very well. I was able to change my financial circumstances entirely because of it.
But, I had zero passion for cleaning. It was a means, albeit a good means to an end.
On the flip side, I do have a passion for this blog. I get all excited inside when I get up in the morning and start working on a project or watch my stats explode. It keeps me going.
That’s what you need to find – that passion that makes you want to jump out of bed in the morning and hit the ground running.
2. Do You Have A Significant Emergency Fund?
I had zippo in my emergency fund and didn’t even know what an emergency fund was when I first embarked in the cleaning business.
Bad plan. If I hadn’t been successful, I would have been in worse shape.
So, make sure you have enough saved to carry your family through until you’re profitable.
How much should you save? I guess that all depends on, but to be safe, I’d say somewhere between six months and a year.
3. Do You Have Credit Card Debt?
I was in debt over $78,000 between credit cards and student loans.
Not a good plan to start my business – luckily I made it, but you could seriously put yourself in further jeapody by going into business with debt. Start a plan to pay off your credit card debt first before you think about starting a business.
4. What’s Your FICO Score?
To start a business, your credit score should be at a minimum of 700. If your score is any lower, work on improving your score first.
5. Do You Have Enough Saved To Cover Operating Expenses for A Year?
I’m not talking about your emergency fund, but rather a separate savings account that can cover the operating cost for the business. If not and you start down the road of self-employment, and you can’t pay those expenses, what do you think will happen?
6. You Promise Not To Utilize Your Retirement Account, House or Any Other Asset
Don’t be foolish and think using the equity in your home will be the way to start your business. Maybe you think using your retirement account sounds like a great idea.
No, no and no.
Don’t put these and other assets at risk. If your business goes belly up and you can’t pay the mortgage, now you’re homeless and businessless.
Make smart decisions about funding, and that includes not using your home as collateral for a business or personal loan.
7. Don’t Fund Your Business With Credit Cards
I once had a well-known coach tell me to fund her “Platinum High-End Coaching Program” with my credit card. Not to worry she said, all I needed to do was to devise a plan on how I would pay off the card.
“…if you’re borrowing to invest in a training course or in mentoring, I recommend applying a portion of the new income you’ll be making towards paying back the amount borrowed. Viewed in this way, creating debt is an investment in YOU and your business. Using this strategy, you’ll be able to pay quickly off the amount borrowed, making it a wise and valuable investment that will pay you back in increased income for years to come.”
Here’s the problem with her logic – what if you aren’t able to create more business as a result of this investment?
I know countless coaches who did this very thing only to be still paying off these 25K – 100K coaching programs. They’ll likely be paying for this for years to come.
Don’t be foolish and don’t let some hot-shot coach tell you to do something that is just financial suicide.
If you think this type of program will help you grow your business, start putting the money aside to pay for the purchase in cash.
I’m the first to admit I was very lucky. I didn’t follow any of the rules I’ve outlined here. But it could have turned out disastrous, and I could have found myself without an income or a place to live.
As you contemplate getting into business for yourself, make sure you give it the proper thought and consideration.
Take the time to devise a sound financial plan for your business.
In the end, you’ll be keeping your finances in tact while building your businesses. A win-win.