Are you feeling unsatisfied by your job? Do you fantasize about starting your own business? If you’re ready to make your dream a reality, consider taking the first big step toward becoming an entrepreneur: getting a clear understanding of your financial situation.
While you must have the passion and vision to strike out on your own, financial ability is sometimes the most critical component of small business ownership. And you may need less than you think to get going. According to Intuit’s $10,000 Strong & Growing report, 64 percent of small businesses are started with $10,000 or less.
When I started my business, I made a commitment to only do work that was an extension of my greatest talents. I also made the decision that it would be a service lead business model, which meant I didn’t need any overhead to start it, other than a website. Knowing your business model first will help you strategize what your venture needs to get going successfully.
Check out these five financial strategies to guide your first steps toward building a small business:
Establish a monthly fixed cost of living
Depending on your current salary, starting your own business will require you to receive a smaller income – or no income – in the beginning. Therefore, it’s critical that you get clear on your fixed cost of living. Make sure it includes every monthly cost you incur, such as housing, food, and insurance. Know that number and be clear that you’ll need to bring in at least that amount to support your basic needs.
Decide what you are willing to give up
Are you a conscious spender? You may be spending more money on non-essentials than you realize. After you establish a monthly fixed cost of living, review your daily discretionary spending. What are you willing to live without in order to pursue your dream? New clothes? Dinner out? The latest tech gadget? Make a list of the things that you can live without and start monitoring your spending accordingly.
Come up with a “pull-the-cord strategy”
When I started my business I decided to invest the cost of an MBA, from my savings, into my business. If I needed to spend more than that, then I knew that I needed to scrap the idea and get another job. What are the conditions that will alert you to pull the cord on your business before you experience financial devastation? For example, you may have the $10,000 to get your business started, but don’t want to spend more of your savings beyond that. Knowing and establishing your exit conditions will allow you to focus on building your business and not worry that you’re ruining your personal financial health in the meantime.
Create a support budget
You can’t be great at everything. In fact, the most successful businesses thrive because the owner is fully investing his or her greatest strengths into the business. A whole spectrum of skills are needed as you navigate the building and running of your new business. Establish which types of skills you need up front and what the cost of hiring for that skillset will be. What can you afford and how much revenue will you need to generate in order to hire this support? Knowing this number will help you establish how to fund your business in a way that works for you.
Establish the cost of your products or services
Figure out what you should charge for your go-to-market product or service. Take into consideration your time, fixed costs, and cost of living when you establish the price or fee of what you sell. Think hard about the value you provide and put a price to that – make sure it feels right for the market, but is also practical and will support your operations.
According to 2014 data from the Small Business Administration, just half of all small businesses will survive past five years and a third after 10 years. Deciding to start your own business can be thrilling. All you need is drive, patience and a defined financial path that’s right for you. Get out there and pursue that dream!
Laura Garnett is a performance strategist, TEDx speaker, and the creator of the Zone of Genius Assessment. She works with CEOs and executives to identify their unique talents, skills, and purpose and crafts an actionable plan to leverage these strengths in their day-to-day work. She has consulted with organizations including Capital One, Conscious Capitalism, Blurb, and MTV. Prior to launching her company, New York City-based Garnett Consulting, Garnett honed her marketing, branding, and mission-refining skills at companies like Capital One, American Express, IAC, and Google.
NEXT WEEK: Once you’ve gotten your finances in order, Beth Kobliner gives you the reasons you should step back and ensure your expectations line up with reality when starting a business.