Many of us dream of starting our own businesses. The idea of working for ourselves and being our own boss has great appeal to a lot of people, yet many aspiring entrepreneurs are not ready for the financial realities of running their own businesses.
I have worked with several start-up businesses, and by far the number one reason they stop pursuing their dream of running a business is that they run out of money.
Someone I worked with started last year with a sizable budget to get launched and realized quickly that what she thought was enough money to really get going had to be spent on totally unexpected expenses. She had to shelve her idea for several months. The good news is she got very creative and networked like crazy. She found enough people who also believed in her product that she is boot-strapping her business with less money but a clear vision of how she’ll build a sustainable business. It was a hard lesson learned, but I can guarantee that she will be a better business owner now that she understands how to budget for her business.
When you consider the failure rate of new businesses, the first year is the key to long-term success. And in order to survive the ups and downs of running a business, you’d better be prepared emotionally and financially for the first year.
Take the time up front to assess your situation:
-What is my true tolerance for risk?
-Do I have enough money in the bank to self-fund a business?
-What other avenues for funding are possibile: family, friends, colleagues?
-Do I want to take out a bank loan, and will I even qualify for one?
-Do I want investors?
Once you assess your answers, start to build a basic budget with revenue and expenses so that you have a clear picture of your financial situation. Build out a 12-month budget. You can create your own or find free templates on the internet. Be very realistic about your sales and revenue forecasts for the first year. It is better to underestimate than overestimate.
After you complete your budget for the first year, review your level of comfort with the results. What is your gut reaction? Are you feeling confident or queasy about what you see? Your reaction should guide your next steps. If you are feeling good about what you see and your tolerance for risk, then this might be the time to get started. If you have the opposite reaction, then realistically, you should be doing some more planning and building reserves before you start your company.
I’m an avid reader about entrepreneurship, and one of best basic books about how to get started is The Wall Street Journal Complete Small Business Guidebook by Colleen DeBaise. It’s a great read full of ideas, templates and success stories.
Owning a business is very exciting. Take the time up front to be financially prepared for the roller coaster of the first year. Investing time in being truly aware and informed of your financial situation will pay dividends in the long run.
To your success!
About the Author:
Mary Jacobs is founder of The Women’s Excelerator. Mary is a strategist, educator and consultant who has a passion for working with women entrepreneurs. Her focus is on sales strategies for launching and building sustainable businesses for women starting professional service firms. Learn more about Mary at www.thewomensexcelerator.com.