“I’m tired of these constant emails and meetings. I’m tired of the stress. I want out of this corporate job!”
If you’ve ever said these words… or even have thought them in quiet desperation, you are not alone. In fact, several of my clients have expressed this sentiment in financial planning meetings over the past year. These discussions have turned to steps they might take to plan for starting a business.
I believe the pandemic gave a lot of people “permission” to get real about the direction of their careers. Those who once thought they might start a business someday began to consider real possibilities. These folks moved from feeling stuck in a career to feeling like they have options.
I can relate, as I went through the same line of thinking when launching Life Moves Wealth Management. The decision to leave a comfortable and familiar career role in favor of starting a business can feel daunting and almost impossible.
From my own experience in leaving a larger firm to start my own, here are five things you’ll want to consider before starting a business:
Cash gives you flexibility managing your start-up and ongoing expenses. Cash also provides flexibility in deciding how and when to receive owner distributions.
How much cash you will need may vary industry or service, and will depend upon:
This one is easy to underestimate, especially for those who are highly optimistic. Your business may be able to cash flow expenses and still be unprofitable. You may also be able to finance start-up costs and ongoing growth with debt. Be very clear in your planning about how much debt the business should carry and for how long.
This is where cash flow and profit are either working for you, or they are working against you. There is a limit to spending to grow, and there are many high profile examples of businesses testing these limits and ultimately crashing.
Before starting a business, think about how fast you should attempt to grow and what it will take to achieve that growth. Will you need more employees and equipment? What amount of revenue will each new person or piece of equipment bring to the business? What amount of cost – all in – will they bring to the business? What level of increased exposure will they bring to the business?
Have in mind a specific amount of revenue or number of clients you can serve profitably before needing to add resources.
Research all the professional, local, and state licenses you may need to hold for your business. Does your city and state require separate licenses? Are there special licenses needed based on your business category?
Consider professional associations you might join to help maintain CE credits, special insurance, and other benefits. Some associations may offer help with filing forms at the state or setting up a proper business entity. They may also offer access to legal and accounting services.
The type and amount of insurance you may need will depend on your operation. A business providing onsite services will need different coverage than, say, a financial advisor. One may need more accident coverage, and another more errors and omissions coverage. Talk to a reputable business insurance agent to understand your potential coverage needs and costs.
You may find it difficult to plan your exit when you’ve only just begun. Whether you intend to sell your business at a certain age or on a defined timeline, it’s always good to begin with the end in mind.
Having an exit plan may keep you from feeling stuck somewhere down the line. An exit plan may also help you make the right decisions for yourself and the business when life moves unexpectedly.
Before starting a business, the decisions you’ll need to make and the timeline will have a financial impact. Good planning will help you get off to a good start when you’re ready.
Related: check out The Financial Purpose Podcast episode 12 Burn the ships.
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