Many people dream of being their own boss. Mark, an entrepreneur, points out that the income received from running a business can vary significantly from being employed. Income may drop drastically when you start your own business. Christie and Joan, having served in the early childhood education sector for many years, decided to give up their stable jobs to run a playgroup company. Although they have come up with a budget plan and are familiar with the sector, they still overspent before the commencement of business. What can they do to increase income and cut expenditure? When reviewing their original decision, what did they learn?
Mark：Starting your own business? It's very important to be mentally well prepared. In the beginning, it's normal that your income may drop drastically.
Joan：We tried to do anything we can by ourselves. We even put together a cabinet that we bought ourselves.
Christie：You just have to stick it out and do it. That is the only way to gain experience.
5 money management keys for starting your business
It is very courageous to step out of your comfort zone to achieve your dream. Yet, starting a business always requires a lot of investment capital. Are you financially ready?
- Be prepared. You receive a monthly salary when you are employed. Yet, you must have sufficient capital in place for starting and operating your business to be our own boss. Before your business becomes stable, your income may be far less than your salary as an employee, or you may break even or even make a loss.
- Do not invest all your savings in your business. In case your business does not run smoothly, you need a reserve equivalent to your expenditure of three to six months. Therefore, even if your business performs badly and you fail to get a job immediately, you still have money for emergencies.
- If you have financial commitments, you should reserve more money for all the daily expenditures, such as mortgages, children education and insurance.
- Be cautious when considering the pros and cons of starting a business if you need to take out a loan. While borrowing enables you to increase your capital immediately and expand your business, it may add on to your liabilities and burden if you make a loss in your business. Be cautious when taking out a loan.
- A financial management plan for running a business is more complicated than a personal one but there are still similar principles to keep your expenditure within limits.
|Personal financial management||Financial management for running a business|
|Set a financial management goal||Estimate how much turnover your company will need and how much you will earn within a specified period in the future|
|Create a budget||Calculate the cost of starting your business and the daily operating expenses|
|Make monthly income assumptions||Estimate the cash flow generated from the turnover and business operations|
|Calculate your monthly savings||Calculate the net profit by deducting all expenditures from the forecasted turnover|
|Estimate when you will achieve your financial goal||Analyse the time required to break even or to achieve a favourable return, under different scenarios|
|Calculate the value of your assets on hand regularly||Update your company's balance sheet regularly|