I’ve volunteered to do a few blogs on the financial planning of going pro, so here comes the first installment.
First and foremost, you can’t plan where you’re going if you don’t know where you are.
You have to sit down and do a complete list of your financial picture, sort of a “monetary snap shot” of yourself. List every debt you have, from the mortgage to the ten bucks you borrowed from a buddy because you were short at lunch. Make sure it is as complete as you can make it. List all your utilities, insurance premiums and so on. Even the couple of bucks a week to the paperboy. Add to this list the cost of any tools you need but don’t yet have.
Now list all your assets. Any savings? Life insurance cash value? (if you can borrow against it, don’t cash it in). Any other sources of income? Put them all down.
Okay, now you have an idea where you starting from. Now it’s time to do some serious thinking, and be honest. You’ll only be fibbing to yourself if you aren’t. You have to figure out what the minimum is that you need to survive each month. Then figure how long you can hold out at that rate before you go broke. This is your limit, more or less, for becoming self supporting in the business. Can you make it by then? Be honest with yourself. If you can’t, this will be an exercise in frustration and will only be a strain on you and your family. Better to wait until you save up enough to make it safely. (or at least as safely as is possible in business)
Okay, so you’ve gone through the exercise and made the decision to go for broke. What now?
The most important first step is to put everything down in black and white! EVERYTHING! If you don’t keep good, accurate books, the tax man and you are going to become a lot better acquainted than you want. There are many simple, easy systems out there for keeping your own books. Good advice on which to use can be obtained from your bank manager or the local chamber of commerce (or whatever the equivalent is in your country).
Now that you’ve made the leap into the sea of commerce and have a good bookkeeping system in place, what else do you need?
I’d advise a decent insurance policy for disabilities, so an accident or illness won’t put you out of business and your family will have dinner on the table if something lays you out for any extended period. If you think you can’t afford it, ask yourself if you can afford not to have it if you, for example, trip and break your leg?
While we’re talking about insurance, you’ll need it for your business too, so if someone breaks their leg at your shop, the resulting lawsuit won’t result in you living in the poorhouse. Even if you win such a suit, the legal fees and time lost in attending court can be as bad financially as losing.
We all have things we love doing, and things we hate, plus a million and one that fall somewhere in between. At first, you can’t afford to let personal preference influence your choices in what projects you undertake. For now, you have to do whatever you can find that pays. Making that 17th century reproduction of a heavily carved and inlaid armoire can wait until after you’ve made a thousand kitchen cabinets or so. You have got to be realistic and understand that by becoming “self employed” you have traded one boss for many; your customers.
Well, this should give you some food for thought. If anyone has some generalized questions, or has a direction they’d like to see the next installment go, let me know.
-- The nicer the nice, the higher the price!