Starting a business is not easy. Keeping your finances in order is harder.
Around a year ago I quit my 9-5 to start first a telecom consulting company only for the business to evolve into something else entirely. And through that year I’ve had some pretty exciting and scary moments. But when it comes down to starting a business, one of the most crucial areas is finance, and boy are there are a lot of surprises.
The hidden paycheque of your last employer.
Living in BC I have the burden of paying MSP payments of $69.25 a month. I also have to pay for any prescription drugs, dentistry, and any other health costs not covered by MSP. It’s not as bad as it is in the US, but it still adds up fast.
Sales takes twice as long, and pay half as much as expected.
I had no sales for the first 3 months of my business, and by the time I did the deals were only a fraction of the size that I expected. It realistically takes about a year for any business to start getting any traction. Oh, and if you change your business model in the middle, hit the reset button and start over; your sales cycle is going to be just as long. With proper guidance, with a good coach, this can be cut in half. But then you discover…
Running a business is expensive!
Consulting is 100% profit right? Wrong. Insurance, accounting, let alone marketing costs will absorb a huge part of your cashflow. Whether it is membership into a chamber of commerce ($400+ year), endless “coffee meetings” ($5, 3x per week), networking events (quality ones cost $60-100 each) or all of the costs of driving out to clients. Also, outside advice like coaching, is necessary but expensive.
Customers sometimes don’t pay.
Fortunately this hasn’t happened to me, but it has happened to many of my colleagues. Luckily you can take out a loan to cover out the ups and downs, but unfortunately…
No one wants to lend you money
Before you start a business, get approved for as much line of credit as you you’ll think you’ll need. Then double it. Hopefully you won’t need it, but it beats using a credit card right?
Money isn’t your only scarce commodity.
Surprised? Money isn’t your scarcest commodity in running a business. Time is. You neither can, nor should do everything yourself. Don’t go out and hire a virtual assistant just yet, but outsourcing your book keeping and website work is an absolute no brainer and should be done from the start. Your time is valuable and scarce. The big thing that changed the course of my business was automating my processes with software. I got so good at it that I even built a course around it and it became my main consulting area.
As a consultant, I am very lucky that my margins very high on a cash basis; having no inventory costs and working from home keeps cost down. But time is still a scarce commodity. But would I go back to being a full time employee? Maybe, but if I did I would go back on a flexible basis. I didn’t go into business for the money; I went into it because I knew that I would be happier choosing my own destiny. Ultimately, running a business that you love will lead to financial success so long as you keep your nose to the grindstone, keep hammering out…and never, ever, give up. With that in mind, if you ever feel like you are about to quit, watch this great video.
What financial lessons has being an entrepreneur taught you?