You’ve just come up with an outstanding idea for a business. Your business plan is in place, and you have an impressive list of contacts related to the new venture. You’re ready to start your business, right?
Not necessarily. Having a great idea and business plan are important, certainly. But there’s one more thing that you need to do before launching your business, and that’s getting your life ready for self-employment.
Self-employment is about much more than simply launching a business, and this is particularly true if you’ve never been self-employed in the past. Being an entrepreneur will affect much more than just your career. Self-employment is virtually holistic – it will affect everything else in your life.
This is more important than is commonly assumed; businesses can fail for personal reasons as much as for business ones. For that reason, you need to look beyond the business itself, and at the various areas of your life that need to be prepared for the change.
Preparing your family
If you have a family, you’ll need to make sure that they are on board with your new enterprise. A beginning business owner can expect some or all of the following changes in their family lives:
- There maybe less income, especially when you are trying to get the business up and running. In fact, it may be several years before you reach your former income level.
- The reduction in income will almost certainly lead to a change in your family’s lifestyle. There may be no vacations or eating out for a long time, and some cherished services and purchases may need to be eliminated.
- You may have less time to spend with your family. Again, this is especially true in the upstart phase of the business. You’ll almost certainly be working more hours than you were on your job.
- As a result of the above, your family may need to learn to become more self-sufficient. While this is possible, and even beneficial on some level, the transition can be painful.
Make sure your family understands the challenges that they will face when you start your business. Set the proper expectation, including the ultimate benefits that you hope the transition will bring.
Paying down or paying off your debt
Since income will be on the light side, and you will need to cut expenses, one of the best ways to do this is by paying down or paying off your debt. The best outcome would be to payoff all of your debt, but if you are unable to do that, the next best strategy is to payoff individual debts. Those that you select for payoff should be the ones that will most improve your cash flow.
In addition to enabling you to live on less income, paying off or paying down debts will also free up your credit lines in the event that you need them to sustain your business or your life down the road. Businesses always need credit, but personal credit has to fill the bill at least until the business is established enough to get formal business loans.
Building up your savings
There are business ventures that are instant success stories, but those are truly the exception. In the vast majority of upstart businesses, the owner is faced with the task of getting the business from 0 to 60 – income-wise – in the shortest amount of time possible. But even if that is done fairly quickly, there will still be a period of time that can last anywhere from a few months to a couple of years when income will be scarce. If you are not prepared for this possibility, your business can fail before you even get out of the starting gate.
The best way to deal with this issue is to have a sufficient amount savings before starting the business. At a minimum, you should have enough in savings that you can survive for at least six months without an income. Hopefully you will create a livable cash flow before your savings run out. In the meantime, you’ll have to rely on the money that you saved beforehand.
Developing outside income sources
In addition to building up savings, your business will have a greater chance of success if you can maintain outside income sources, particularly in the early days of the business. The idea is to have one or more income supplements, which will provide cash flow before the business actually develops one.
There are several ways that you can approach this:
- You can continue your current job in a reduced capacity, working either part-time or on a contract basis.
- You can act as a subcontractor for other companies in the same line of business that you are going into.
- You can take a side job that is completely unrelated to either your current job or your new business.
- The side venture can be part-time, contract, temporary, or even seasonal.
Having at least one source of steady income can increase the chance that your business will succeed. It will provide you with a source of income during the startup when the business doesn’t have any. If done in combination with a six months savings reserve, you may be able survive for a year or more until the business begins making money.
Creating a back-up plan
Some people think that it is self-defeating to start a business, but to have a backup plan. I think it’s just common sense. And if you have a family to support, it’s virtually a requirement.
Not all businesses succeed, and that’s a reality you need to be familiar with even if you are nothing but optimistic about your prospects.
At a minimum, you should at least be mentally prepared to go back to your previous career in the event that your business doesn’t make it. That means that you shouldn’t burn any bridges when you leave your current job! In addition, you should continue to maintain contacts within your previous career and keep an up-to-date resume. Ideally, you can cover this by using your current career as an outside income source while you are building up your business.
Having a backup plan doesn’t mean that you’re fatalistic about your business. Instead, it means knowing that you have a “safety net”, and that should give you the confidence that you need to press forward without fear of failure.
If you’re taking the plunge into self-employment, make sure to get your life ready for the change first.
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