Being your own boss is undoubtedly exciting.
However, I would liken starting your own business full-time without preparing financially would be like jumping out of a plane without a parachute.
Sure, you might survive the fall. But, it would be very painful and can leave you with regrets.
If you are seriously considering quitting your nine to six job to pursue a full-time entrepreneurial career it is vital to getting prepared financially.
This will take the financial pressure off so that you can fully concentrate on making your business a success.
As such, here are four tips to help you prepare financially before you start a business.
TL;DR: How to Get Financially Ready to Become Your Own Boss
- Figure Out Your Budget and Optimise It
- Do Not Touch Your Emergency Fund to Start Your Own Business
- Save More for a Longer Runway
- Start Part-Time First
- Bonus: SeedlyTV Episode — Because Freelancing Isn’t Free!
1. Figure Out Your Budget and Optimise It
There’s no doubt about it.
Starting your own full-time business is a huge move as you will have to be completely responsible for your own financial future.
The first thing you need to do is to sit down and take a long hard look at your monthly living expenses like:
When starting your own business you will need to consider other specific expenses like business insurance, operating costs etc.
You should also consider decreasing your expenses.
The tips mentioned in the article above would be a great place to start.
Figuring out your monthly expenses will give you a sense of what you have to earn each month.
This can help greatly when starting your business as you can use your monthly expenses as a reference for your hourly rates, daily income goals and weekly revenue targets.
When you understand your monthly expenses and cash flow, it will be easier to run a business or freelance as you know what profit goals to hit.
This will play a part in determining how many work hours you put in, how many clients to get and how many projects to undertake.
2. Do Not Touch Your Emergency Fund To Start Your Own Business
Since you are reading this on Seedly, I would assume you are financially savvy and know the importance of an emergency fund.
When you become your own boss, it is even more vital as your income will more than likely become irregular when you become your own boss.
Also, here is a reality check.
A study by NUS Enterprise, the National University of Singapore’s business and entrepreneurship centre entitled Growth Dynamics of High-Tech Startups in Singapore: A Longitudinal Study found that companies based in Singapore have a five-year survival rate of 53 per cent.
As such, you should start building up an emergency fund that covers up to six months to a year of personal expenses and not use it to start your business.
3. Save More for a Longer Runway
After you have saved up your emergency fund, you should save some more as when you become an entrepreneur, you are likely to face cash flow challenges.
It may take time for your business to take off or your clients will take their own sweet time to pay you.
You will also have to take into account unforeseen startup costs like purchasing equipment, starting a website, getting your business registered and more.
Cash in hand is an invaluable asset for entrepreneurs as it helps you survive dry spells and client troubles to concentrate on making your business a sucess.
But, the amount you need varies on a case by case basis and is dependent on factors like your:
- Monthly expenses
- Backup options like a partner who can help with the expenses or a stable source of passive income
- How much risk you are willing to take.
Saving a year’s worth of expenses can provide a longer runway and free you up to focus on building your business.
This will also increase the chances of success for your entrepreneurial endeavour.
4. Start Part-Time First
A piece of advice from one of the founders Geoff Ang: a wildly successful commercial photographer who shot for clients like Audi, Adidas, BMW, Clinique, Carlsberg, Coca Cola, Canon and more stuck with me.
He advised hobbyist photographers who wanted to become a full-time photographer to not quit their day job just yet.
Instead, you should dedicate your free time to develop a side hustle based on the business you want to start in the future.
You should be able to cover your expenses with this side hustle before you quit your day job.
There are two benefits to this.
First, it demonstrates that the business you want to start is viable.
Second, it provides a financial safety net as you are able to support yourself when you quit your day job.
Bonus: SeedlyTV Episode — Because Freelancing Isn’t Free!
One more thing.
In May 2020, we put together this SeedlyTV episode at the start of the COVID-19 pandemic to cover the challenges freelancers in Singapore face.
We invited Audrey Lim (Moderator, SG COVID-19 Creative/Cultural Professionals and Freelancers Support Group) and freelancers like Jeshua Soh (Entrepreneur and Film Maker); Sandra Lim (Private Tutor); Shanice Stanislaus (Performer, Choreographer and Producer) and Jon Tan (Film Maker) on board.
The topics covered include:
- What are some of the struggles freelancers face?
- Has the support for freelancers been helpful to them?
- What are some ways they can better navigate during tough times like this?
- What are some initiatives our freelancer guests came up with to help freelancers and how can we show our support?
Do check it out!