How Did You Know You Were Financially Ready

[KristineS]

I always wonder about this, because starting a business seems like a pretty brave act to me. How did you know you were financially ready to start a business? Did you just leap and hope the money would follow, or did you have a set amount that you felt you needed before you'd start up?

[vangogh]

I mostly took a leap. I had been working for a software company as a temp for about a year. IBM bought the company just about the time myself and the other temps were about to be made permanent and decided that the software we specifically worked on here in Boulder duplicated something they already had. IBM let go of most everyone in our office.

I had been wanting to go it on my own anyway and it seemed like as good a time as any. I did have some money saved, but went through it pretty fast. That first business didn't do well, but I was hooked on being in business for myself and started again. The second time I had no savings, but a lot of confidence in myself.

[Spider]

I always wonder about this, because starting a business seems like a pretty brave act to me. How did you know you were financially ready to start a business? Did you just leap and hope the money would follow, or did you have a set amount that you felt you needed before you'd start up?I suppose some people decide they will start a business of their own, and then decide how much money they will need to do it, and start saving until they have that money, then start their business. That seems to be what you are expecting to happen, Kristine.

With my own businesses, and thinking of the businesses of most of my clients, we all started when we felt the time was right to start that business and went ahead and did it. Deciding where the money would come from and how much was needed, was one of the many decisions that had to be made at that time - along with what furniture will I need, and should I rent an office or retail space, and how will I get my first sale - and so on.

In my first business, I decided to start, decided how much money I needed, saw how much I had, asked my bank manager for a loan for the rest, took his refusal and figured out how I could start using the funds I already had.

IOW, you could accumulate the funds first before starting, or you could start and figure out how to do it with the funds already at hand. Do you really need an office before you start or could you get the office later? Do you really need furniture before you start or could you buy the furniture later? Do you really need money before you start or can you get the money later?

You do what you can with what you have. That's the mark of an entrepreneur.

[Steve B]

It's often not the business expenses that a prospective business owner is worried about, it's the personal living expenses they will have to pay while they wait to find out if their business idea is going to be profitable enough. It's not as easy to forego food and paying the mortgage as it is putting off buying office furniture.

You need to have a healthy cushion in the bank to take care of your living expenses. If you are young and living with M&D this may not be very much. But, if you have three young kids etc ...

[vangogh]

I agree completely Steve. There was never time I worried about having enough money to run my business. Granted it didn't take a lot to start, but even with other business ideas I had the issue of having money for the business wasn't the issue.

It's always been more how do I support myself in those early months before the business is making enough money to support me. That's I think the issue for most people when deciding when to leave a job and go it on their own.

Two possibilities are to keep the day job while working part time on your business at night, or switch the full time job to a part time job to help with expenses while still leaving time to work on your business.

[orion_joel]

I did not have so much the problem of worrying about where the money was going to come from as at the time i started my business i still did have a day job. It only become a problem about 6 months in when the company i was working for said either stay and work for us and forgo the business, or leave. It is sure an ultimatum, and at the time i was making double the profit i was getting from working for them. So i gave two weeks notice.

However i got to use to not having to do much marketing and haveing one customer that spent a lot of money with me, and i got pretty lazy at looking for new clients. It eventually happened that the sales started to dry up and funds start to grow smaller, so to fill the time i went back to a part time job which turned into a full time job, and have not been able to turn around the full time job back to my own business. It is something that i am working on an while i am not short on money to support me while trying i do not currently have the optimism that i could make a business work and profit to the extent that i would like. Which makes me hesitant to move forward at this point.

So while i know i am financially ready, which is purely based on me taking the amount i have in the bank working out my expenses and dividing it to see how many months i have in there. I do not think i am physically or mentally ready yet.

[KristineS]

So while i know i am financially ready, which is purely based on me taking the amount i have in the bank working out my expenses and dividing it to see how many months i have in there. I do not think i am physically or mentally ready yet.

That's a good point, Joel. It isn't necessarily only about being financially ready. You have to be mentally and emotionally ready to take the leap as well.

I'm guessing some businesses do fail not because of financial reasons but because the person starting them wasn't physically or emotionally ready to handle the pressures of having a business.

[Spider]

Regarding the emotional transition from being employed by a company to being self-employed, I invested the money I had in my new business. I then paid myself a regular salary from what was now the company's money. So, there was no emotional transition from having a regular income to having nothing - I made it like I just changed jobs from one company to another, the only difference being that I owned the second company. My salary continued without interruption.

Now, it is true that I was paying income tax on money I had already paid tax on once, but that's not an awfully large amount and really only had effect until the business was earning its own money and salaries could be paid out of cashflow.

So, I don't see the apprehension nor the thoughts to prepare for a period you have to support yourself from private funds. As for being mentally prepared, it's nothing more than a promotion - you leave one company in which you had a certain level of responsibility, and start working for another company in a higher position. It's just like getting a better job. How much "emotional preparation" would you need for that?

[orion_joel]

Frederick, i do see the point that you are making and i do believe that it is a very valid point. Although while for you and probably many other's this is something that you can do and not think twice about. There are many others that do have different ways of thinking, and this can greatly change the way that you perceive the actual move.

As i have mentioned in other posts, when i first move solely to my business it was already making an income which was about double what i was making in the job that i was leaving. This made it much easier to leave the job that i was in. However, now i am back in full time employment and at this point that decision would be a very different one for me. While yes if i was considering leaving employment for my own business then i should be ready and fully aware of just what i am doing to get the business making it's own money. It would be a very different decision in my head, which before i knew i was better off not having the job. Now i have security and a sure source of income where as going to my own business i am going to the unknown.

But really it is just different people's perspective on things. If we all had the same thought pattern that you had in regards to going into business. Then you would find that everyone is going into business and there would be no one left for anyone to employee.

[vangogh]

Joel it was similar for me. It wasn't easy to just go into business for myself. It's a very different mindset to work for a steady paycheck and work for yourself. Some of it is the money, but not all of it.

I had wanted to start my own business for awhile, but two significant events helped make it reality. One was getting laid off from my job. IBM bought the company I was working for and closed the office here in Boulder since we worked on software that really duplicated something IBM already made elsewhere. Naturally I needed to do something to bring in money again.

The second thing was a friend in a similar situation who wanted to go into business with me. Having her in the business made it easier for me to get started. I didn't take me long to know it was the right decision for me, but at the time I wasn't 100% sure and having someone else with me on that journey helped get me to take those first few steps.

[Spider]

I agree. And I thoroughly recommend going into business with another person. Unless it is your intention to be a one-person business and have no desire to grow larger.

Would-be business owners seem, more often than not, to start by themselves and dream of employing people later. That almost never happens and probably accounts for the high percentage of business failures in the early years. If you want to be a one-person business, that's fine - start that way and remain so. But if you intend to grow into a larger business employing people, it sems almost a necessity to start with at least one other person. That other person can be a partner or an employee, but set things up so you have another person with you from the start. It is awfully difficult to hire your first employee after you have been in business for a while.

I think it is very significant that so many of today's big businesses started as partnerships - Sears and Roebuck, Hewlett Packard, Microsoft, Apple, GE, Halliburton, Dow Jones, Pfizer, Best Buy etc. etc. etc. the list is endless.

[orion_joel]

I can see exactly where you are coming from spider. Starting as a one person business and then trying to add employees later can be a bit of a hit to the system, you have built a business that makes X dollars which covers you, and unless you are making a large profit you are really going to feel having to pay out money to an employee.

Where as if you start by having an employee or a partner up front you are going to be straight away geared to expect this sort of out flow of cash and know what you need to do to try and work with it. I guess the only problem for many small business is that the start is the time that they can least afford to pay employee's, and depending on how they are financing and weather they are a partner or employee, will greatly affect if they can actually afford to go into business.

[blogdog]

I always wonder about this, because starting a business seems like a pretty brave act to me. How did you know you were financially ready to start a business? Did you just leap and hope the money would follow, or did you have a set amount that you felt you needed before you'd start up?

I think you're never financially ready. Do your homework and then make the leap knowing you'll have to figure some things out on the way down.

[vangogh]

knowing you'll have to figure some things out on the way

That's a really good point Mike. The road to success is paved with failures along the way. It's scary to think you'll fail at things, but it's not only inevitable, but a necessary part of eventually succeeding. The trick is to be willing to make mistakes so you can learn from them and do better the next time.

[KristineS]

The trick is to be willing to make mistakes so you can learn from them and do better the next time.

I think that's the part a lot of people miss. They make a mistake and then beat themselves up about it. Many successful people failed a few times before they succeeded. Sometimes it isn't about success, it's about being resilient enough to try again.

[blogdog]

I completely agree. It's not about how many times you get knocked down, it's about how many times you get back up.

[vangogh]

If you learn from it you didn't make a mistake. Very few if any get things exactly right the first time. You try something, see what happens, learn how to do it better, and try again.

[orion_joel]

Sometimes those mistakes cost a lot, and are expensive lessons, other time they are great lesson's for very little cost. While you often cannot match the price to the size of the lesson, in the long run you will probably find out that the cost of the lesson was almost worth it.

[vangogh]

While you often cannot match the price to the size of the lesson, in the long run you will probably find out that the cost of the lesson was almost worth it.

When I look over the mistakes I've made in life and what I've learned from those mistakes, there is absolutely a direct correlation between how costly the mistake and how profitable the lesson learned.