This is the third of a five part series of posts :
- Breaking Free Of A Salaried Existence - Being Your Own Boss
- Your Mind - Your First Hurdle
- Getting The Money To Start Your Own Business
- Making Time For Your Home Based Business
- Getting The Experience To Manage Your Home Based Business
One of the biggest worries of potential home business owners or anyone thinking about self employment isn't about getting enough money to start their business and but whether they can generate enough income to replace the salary and benefits from a full-time job.
However, you've got to start from somewhere first, so I'm going to say something that you've heard a million times - You have GOT to save money! There are a thousand and one reasons to save, but for now, let's talk about saving for the sole purpose of venturing into your own business.
Many people tend to think too big when they start up a business. They think that they MUST have a five or six figure budget to go into business. They start planning to have a big cosy office with nice interior decoration, the latest tech gadgets and a hundred and one others things that an entrepreneur "must have".
The truth is that success doesn't depend on the size of your startup capital. You can have a million dollar budget for fancy office furniture and equipment, a dozen staff and the flashy marketing campaigns. In fact, one of the most common reasons new businesses fail is because they've over spent on unnecessary expenses - like those mentioned above. When you're starting out, you've got to keep your cost as low as possible. However, there is ONE investment that you cannot afford to be stingy about.
The BIGGEST INVESTMENT you can make in your new business is yourself - your time, your effort, your talents and your dreams.
My wife and I were fortunate because when we started our home catering business, we only needed less than RM100 to print and distribute flyers. Operating from home also meant we did not carry any overhead costs. In our type of business, customers pay up front for the month's catering. This means that we already have our costs covered AND our profits realized from day one.
If you can't find a business with the same payment model, you MUST start saving at least 10% or more of your income for your startup costs. If you are starting late (let's say age 30, then you need to increase that figure to at least 20%. Even then, you may only be able to cover your backup needs and will still need to rely on a bank loan. This means your dream of being your own boss may not materialize immediately - which isn't necessarily a bad thing. It may take you anywhere from 2 to 5 years to save, but you can use that time to dream, plan and learn about your future business.
But what if your budget just cannot include saving? It's not so easy, but you have lots of options :
- Get a weekend job and save the money earned from that or both husband and wife may have to work for a while to earn more. Remember that this is supposed to be a temporary arrangement to raise funds for your home business startup. Don't put ALL your time and effort without considering time and emotional commitments to family first.
- Budget. It's really amazing how much you can save if you tighten your pursestrings. Go ahead. I dare you to prove me wrong. Instead of your daily Starbucks, make it a regular coffee in a nice coffeeshop. Ride a bicycle to the shop instead of driving. Switch off all the lights in the house that you don't need. Car pool. Use your air conditioner sparingly. If you keep a strict eye on your spending habits, you WILL find lots of extra cash at the end of the month to add to your home business startup fund
- Sell stuff that you don't need. You'd be surprised how much you can raise - that old motorcycle collecting dust, those power tools you don't use, your time share, your underutilized second car etc. You could hold a garage sale, sell your stuff to a second hand store or better still, auction then off on eBay. I am constantly amazed at the crazy stuff people are selling on eBay - and the money they're getting for it. In fact, if you get good at this, selling on eBay could even become your home based business!
- Put your money to work. Use the money you raised from working your part-time job, profits from the sales of your stuff and your savings. Putting your money in a savings account gives you very little in return. Find ways to safely invest with higher returns. If you're on a 3 to 5 years plan to raise funds for your home business, then you can use invest in stocks, mutual funds and IPOs. Remember to seek advice if you don't know how to invest. Don't be rash and go for high risk investments that can just as soon burn all your money instead of multiplying it.
- Get a business partner with the cash. This requires very careful consideration. Many businesses have run aground NOT from financial problems but from the inability of the partners to see eye-to-eye on the nitty-gritty of running the business. You don't want to find yourself in a situation where you are a minority shareholder and your partner wants out.
- Borrow money from family and friends. I don't encourage this unless you have a very, very supportive and tight family. Remember, you have to live with family for a long time and you probably want to stay friends with your friends for a long time too - but nothing breaks down a relationship faster than borrowing money and not being able to pay back. So before you borrow money from family and friends, make sure you have a solid business plan and done your research about your intended business. You have to ask yourself whether those relationships are strong enough to weather the storms of running a business - which may mean late repayments of the loan. If you do manage to pay back the loans on time, remember to include interest. You want your family and friends to benefit from your business too.
- Refinance your car or home loan. Make sure you do your calculations so that you don't end up with more debt than you can handle. Very often, all you need to do is to just keep a tight rein on your spending for a year or two and you won't have to refinance your car and home loan
- Borrow money from a bank. For some business ventures, this is the only alternative. Make sure you seek financial counsel from more experienced professionals before committing to long term loans. You need to understand all the terms and conditions to to loan and whether there are any hidden costs involved. You also need to calculate how the loan repayments will affect your personal and businss budget.
- Apply for micro loans from Government or Entrepreneurial support agencies. If you can put up with tedious red tape, then thes types of micro loans are really a great way to fund your home based business.
- Use your credit card. I really don't think this is a good option, but sometimes the amount you need doesn't justify the hassles of a bank loan. If you're considering this, consider 1 & 2 first.
Long list... but even longer list of things to consider for each option. Remember... "NO pain, No gain". Getting over the money hurdle is a crucial step toward being the boss of your own business. Generally all it takes is prudent spending and common-sense money management to save money.
In this series :
I NEED MONEY TO START MY BUSINESS