Editor’s note: This post is part of our Personal Stories series, where our financial coaches share their own financial journey. We hope you enjoy getting to know us a little better and ultimately learn from our mistakes!
OK, so here’s the situation…
For several years my wife had been dropping hints that it was her dream to have her own business. She had a distinct vision for how she wanted to disrupt an industry and provide a unique service that she could not find anywhere else. I had always been mildly encouraging saying, “Sure if our income has progressed to this level and if we paid off all of our debt except for our home and if we got our savings to a certain level, then it will be worth a shot.” Suddenly without even realizing it, we hit those goals and my wife handed me a business plan.
“I got this”
Off we went into the wonderful world of starting a business. While we did a lot of things right, we have learned (and are still learning) some crucial lessons on this journey. For example, without realizing it, when I laid out those goals of paying off our debt and building savings, I was implementing a very crucial step to us being able to sustain a new business. To the extent that your business has overhead costs, the stronger you will need to be financially to stand behind that business. Here’s how we did it.
Counting the costs
When my wife handed me the business plan, I found she had made an itemized list of every expense she could find for the business and the time frame for each expense. She had taken hours to uncover the real-world cost of every piece of equipment, researched leasing costs, and estimated salaries for the first 3 years of the business. It allowed us to make realistic estimates for how much we would need to set aside and a time frame for profitability. Consider using the Small Business Adminstration’s template to lay out your costs.
Planning for error
My experience is no one has a perfect business plan. Even the most meticulous planning can be derailed by real life. That means making sure you have resources over and above what you have budgeted, in case things go sideways. In addition to your savings, assess your access to low interest loans. Banks generally will not lend to a start-up business, so having a good personal financial reputation is very helpful.
At the end of the day
These days my wife has a successful business that enables us to raise 3 children and live in the neighborhood we desire. Her work provides the flexibility to accommodate the fact that I occasionally travel for work, and being a business-owner allows her to choose how big she wants to go, depending on where we are in life.
If I could turn back time
One thing I’d say she’d do differently would have been to get a little more experience in her particular industry before launching her business. From the outside looking in, it can be easy to see that an industry needs a shakeup. For instance, Netflix wasn’t the first company to present an alternative to cable. On the other hand, it can be helpful to spend some time in that business to understand the reasons why companies do things a certain way.
In our circumstance, my wife always wondered why the level of personable service was so low in her chosen industry. If she had found a mentor or worked part time in the industry, she would have discovered that hiring and keeping employees was a challenge for everyone in the business. With a little real-world experience, we could have planned to manage this obstacle. Start networking in your desired industry to get an idea of those real-world obstacles. You can also find business mentors through the SBA here.
If I could tell you just one thing
It’s worth it to take the time and get your finances in order first before launching a business from scratch. There are success stories of people of who ran their business solely on their credit cards, but those are few and far between. There are far more stories of people who failed at a business using credit cards, and wound up back in the daily grind, saddled with high interest debt and nothing to show for it.
Your likelihood of a successful business goes up substantially if you have a firm financial foundation. Start where you are doing the things you can do. Go ahead and start itemizing the expenses, lay out your business plan, and try to get some of that on the job experience and mentoring. These are all things that cost you nothing but you can use that time to build the financial foundation to be ready when opportunity knocks.