Before You Take "The Leap," Consider...
According to The Kaufman Index of Start-up activity in 2016, more people in the United States are opening startup businesses today than they have in the past 20 years (here’s the link to bore yourself with the details). Sounds great, but statistically speaking more than half of those businesses fail within a year. So why even try if the odds are stacked against you, right?
I never in my wildest dreams thought that I would be my own boss; mainly because of fear. Not fear of failure, I’m not afraid to fail. Fear of the unknown; particularly in the personal financial area. The thought of not paying my bills, moving ahead with my life, and not being labeled “the provider” terrified me. I’ve always been able to do those things so naturally like most entrepreneurs, I delayed my decision. Luckily, only for a year; most delay the decision for a few more years for their own reasons.
So what can you do to avoid or reduce the fear of failure or anxiety of not providing, paying your bills, etc…?
Create your “Ramen Profitable” budget
I heard about being “Ramen Profitable,” when I first started getting serious about entrepreneurship. I listened to a podcast by Fizzle.co where the focus of the show was about affording to be an entrepreneur. So, what is a “Ramen Profitable” budget? It boils down to asking yourself, “How much money do I need to live on a monthly basis.” This will be different for everyone!
Take myself for example. I am married with no kids but have two cocker spaniels that I like to spoil when I can. My Ramen Budget consists of my bills, some entertainment money for my wife, pets, myself & business expenditures of course. Lucky for me, my wife has a steady job that we can include into our budget which takes the pressure off me a bit.
Some entrepreneurs are single, some have children, some have pets, and some have more obligations than others. Whatever your situation is, sit down and ask yourself, “How much money do I need to live on a monthly basis?”
Plan on how you are going to pay your bills?
Once you figure out your Ramen Budget, you’ll have to figure out, how am I going to pay my bills? After all, we all go into business to “eventually” make some sort of money, but “eventually” doesn’t pay the bills. There are four ways to consider paying the bills while your business gets up and running: Savings, Credit, Investors, Part-time work.
Savings: The median savings for an American family in 2013 was $5,000; that number hasn’t increased drastically. But if you are lucky enough to have saved, good for you. Your Ramen Budget should be able to tell you how far your savings will stretch before you NEED money.
Credit: Credit cards and loans are viewed negatively by today’s society and even some business owners. But let’s face it, if you have not saved to start your business, this is an avenue you need to explore. How much you need to borrow will depend on what you project your business expenses will be plus your salary. Visit with your local bank or SBA branch to learn more about the loans being offered to small business owners and start up entrepreneurs. Keep in mind that credit has to be paid back, so tack that on to your Ramen Budget as well.
Investor: What about having an investor or partner? I caution people when doing this because any partnership is like a marriage, you must be very careful who you choose. The idea of splitting cost may be wonderful and could cloud your judgement. If you decide to seek out an investor or partner, always draft an agreement defining payment details, ownership details, and management details. Setting boundaries can go a long way in reducing potential headaches.
Part-time work: If your new startup doesn’t require you to break the bank, then I strongly recommend part-time work. Find work that is related to what you want to do or who your ideal client is; this will help you get a leg up on what needs to be done to break into your industry and help you pay your bills in the meantime.
The main objective of paying your bills is to reduce the anxiety and desperation of selling your product or service. Potential clients / customers can see desperation.
Have a supporting cast
I cannot stress enough how much a strong supporting cast plays into becoming a successful entrepreneur. My wife has been my rock and always sees the positive in things that I think I’m doing terribly, but she is only one person and she’s almost obligated to encourage me since we’re married.
Spend the money to surround yourself with a great supporting cast. Be it at a coworking space, be it with a mastermind group, a great attorney, CPA, etc… Find yourself with a great supporting cast to help you plow through the tough times. “You are the average of the five people you most associate yourself with” and I truly believe that. You cannot expect to be a successful entrepreneur if you only hang around people that have a 9-5 job or you try to Google tax advice vs. seeing a professional. Find people that will not only support your dream but will help you become a better entrepreneur.
MyLife Financial is a fee-only financial advisory firm providing objective and independent advice virtually. Our clients are busy professionals that face daunting questions of how today's financial decisions will affect their long-term financial success. Everything written is strictly for informational use only. Please seek the advice of your CPA, Attorney, or financial professional before implementing any strategies.
Want to know more about how a financial plan could help you? Click on the clock below to set up your next meeting. Thanks!
© 2017 MyLife Financial, LLC