Things to think about before starting a business

And well before you quit your job

Ah February, the time of the year when life and business mostly returns to business as usual. However, have you returned from the Summer break (bushfires not withstanding), only to find that you have that niggling feeling that maybe it’s time to pack-in your job and do your own thing? Turns out you’re not alone.

Research has shown that more than 50% of people leaving their jobs do so within a couple of weeks of returning from holidays – which most of us take in December/January. But if you’re considering quitting and starting a business, you might want to reconsider – at least for the time being. Why? Well, there are a number of reasons.

Decisions about starting a business in burnout mode is unwise

When you’re burnt-out, stressed or otherwise exhausted (like you might be prior to or on return from holidays), you’re not at your best to make significant life/business or career decisions.  Let the idea of starting a business sit for a couple of weeks. Along the way, ask yourself if you can improve the situation at your current workplace – ie: change roles, take on more responsibility, increase or decrease the hours required, use different skills, get a promotion. Think laterally and ask – if you don’t ask, you definitely won’t get. If the answer there is no, can changing to a different organisation make things better? Still a no? Read on.

Starting a business, then running it isn’t as easy as it may look from the outside.

According to Illion, 51,679 businesses collapsed in FY2018-19. And whilst that number is slightly lower than the previous financial year, it’s still enough to give one pause for thought.

Plus a lot of would-be business owners cite reasons for starting a business of wanting to ‘be their own boss’,‘working fewer hours’ or ‘more work-life balance’. Except, and feel free to ask other small business owners, when you work for yourself your clients/customers become the people you work for and answer to and you will find yourself doing whatever hours you have to in order to find the work, do the work, check the work, deliver the work and then start all over again – all whilst doing all of your business admin on the side too.  

Sometimes it’s not ‘better’ than working for someone else per se – it’s just different. If you’re serious about starting a business, round up a couple of small business owners that you know and have a chat to them about what they do and don’t like about running a business, what drives them crazy and what they wish they’d known before they started.

Starting a business takes planning, patience and money.

Still convinced starting a business is for you? Finally, before you actually quit your job and start your business, you need to do some serious planning. Spend some time thinking about what you’re planning on selling, to whom, how much for and how much will it take in terms of time or money to produce your products/services? These are critical questions to consider before you quit.

Even more important are the questions of;

• how long will it take you to collect that money from your customer and then
• how long will it be before you’re collecting as much money (after paying for the costs of production) as your previous salary.

It’s incredibly easy to say something along the lines of I’ll charge $1000 and sell 10 in the first month (pick any number/timeframe). But that’s highly likely not realistic – especially when you’re first starting out. You have to take your idea to market, find customers, get in front of them, have them like what you’re doing enough to commit their money to it. Not everyone you talk to will like what you’re selling or be in the market for what you’re offering right now. You might find that your buying cycle vary anywhere from a week to a year. And your client will need a multitude of appropriate contacts from you before they commit. Plus bedding down each new client takes time.

Really think long and hard – how long can you survive for without your regular income? Now double that.

One of the general rules of thumb is for you to have access to at least a year’s worth of salary in savings (or capital to draw down on) before you start up and more if you can as there are always unforeseen costs of starting a business.

Business is first and foremost about money – and key here is having more coming in than going out – and allowing for tax and GST. The ATO always gets paid. So you need to have some systems for tracking incoming and outgoing payments – not just relying on what’s in the bank at any given point in time. Remember those 51K businesses that collapsed in 2018-19 – that will have been a key reason some of them went to the wall. Don’t let that be yours.

If keeping track of money in and out, building savings, paying bills on time, reconciliations and taxes really aren’t your thing, you might want to reconsider starting a business as these are key to surviving over the longer term. Certainly there are people who can help you, but particularly in the early days, you need to have a good grasp on your money.

Asked all those questions, come up with really solid answers, got money (and sleep/energy) in reserve and good with finances? You may well be ready for starting a business.

I’ve been in business now as a partner, then owner, for more than 10 years and I wouldn’t have it any other way. That’s not to say there aren’t times when I would cheerfully trade the mountain of work for a good sleep, but for the most part I find it really satisfying and you probably will too.

If you are good to go with starting a business and you need help setting up financial systems to ensure you can track money in and money out to the best of your ability and keep on the right side of the ATO, we’d love to chat. You can call us on 02 6023 1700 or via the form below.