There are many reasons why a successful employee might consider venturing off on their own to establish a business. Some of the reasons I’ve heard are flexibility, more income, & job stability for the future. While we’re quick to think about the potential benefits of opening a business, sometimes we don’t take enough time to consider the drawbacks or potential mishaps of opening a business. Here are 5 questions you should consider before venturing off on your own.
5) Do I have enough money?
This question may seem rudimentary, but I can assure you that most first time business owners underestimate the amount of capital required to start their business and to maintain operations for several years. In my own start up, I considered the expenses to start my business and having three years of living expenses in the event I wasn’t making any money. My own error was to underestimate my expenses, albeit slightly, but more devastatingly, I overestimated the amount of revenue I would bring in. Specifically, year one was a revenue disaster for my business and I was woefully unprepared for how long the process would take to acquire my first client and to grow my business. Year two was dramatically better and I beat my year two target, however because my year one numbers were catastrophically dismal, I was still short my anticipated revenue numbers on a cumulative basis.
4) Am I willing to lose it all?
During the most difficult times of my business, I was worried I was going to lose everything. The question “Am I willing to lose it all” actually came from a friend to my wife just before I launched the firm. Safety and security are critical to my wife, which is a good thing because I am the risk taker. Her balance of safety helps me from making some big bonehead mistakes. You can imagine how it might feel for a risk-averse person to contemplate the question, Am I willing to lose it all? But, I believe this was the question my wife needed to answer to give me permission to pursue my dreams. When our friend worded it to my wife, she asked her was she willing to lose her home. That was a big question as nobody wants to lose their home.
3) What am I giving up by making this decision?
In my case, I was doing fairly well with my prior company. I had been given several promotions throughout my last few years with the company. I was treated well and looked at as having potential for further advancement within the organization. As I left my organization, I was making low six figures between my salary and bonus. The idea of giving up a steady stable salary to have zero salary was breathtakingly terrifying. That was not a decision I considered lightly. I was also going to lose roughly 10% of my salary per year in Pension benefits and 401k matching. I could stomach it even though it was hard to look at. What I did take lightly were the health benefits I would lose from leaving my company. Health insurance is expensive and our family has needed to utilize the hospital 4 times since I left my company! Those medical bills could really stack up if you don’t have insurance coverage. I think what we give up most during this transition is our time. Some of us say we’ll balance family and work life and love the idea of flexibility, but when it comes down to it, our time as business owners ends up being pretty scarce.
2) Am I passionate about this business or do I just like the idea of how it sounds?
This is a big one. It might be easy to confuse passion with curiosity and many of the other elements that come along with being a business owner. But, if you are going to quit your day job, you must be passionate about your business concept. You need to eat, sleep and breathe your vision and mission for your company! The idea of owning a business can bring passion all by itself. That’s why it’s so important to make sure you love the actual task of operating your business. In my own business there are elements that I love and elements that I dislike. The main objective of helping clients achieve their financial objectives brings absolute joy to my life. I love helping people. I love coaching them. I enjoy being an advice giver. I think I’m living in my naturally created realm of who I am as a person. And, that is passion. The minor tasks like CRM input and paperwork are necessary for the job, but I don’t have to be passionate about them as long as I am passionate about the big picture of what I do.
1) How is this decision going to affect my family?
This was the one item that I did not consider at all and it’s probably the most important. When you decide to open a business, your entire family is along for the ride with you. When you sacrifice your wife is going to sacrifice and your kids are going to sacrifice. When you are stressed because you aren’t sure how you’re going to make payroll or pay the mortgage, your family feels the stress that you carry. I’ve felt a bit a guilty about the sacrifice my family has made during the building stages of the business. Specifically, I think about the vacations, toys, and other social elements that my family passed up because of the building of the business. I was discussing this with my friends the other day and their feelings were that it was good for our kids to experience this shakeup. In a generation of kids getting everything they want, it’s probably great for them to hear no and understand they can’t have everything they want in life. But, for how long? How healthy is it for your kids to know how much a gallon of milk costs or to know the price of the toy they want?
Thinking about the 5 items from top to bottom, take the amount of money you think you need and add 50%. Maybe even double it! You can’t be too safe in your projections and the amount of money you may need to build the business and to pay yourself. Are you willing to lose it all and what does that mean to you? Your money, your family, your reputation, have you considered the cost of losing everything? What am I giving up? Is the decision worth it? Sometimes the financial benefit just doesn’t make sense for the risk you are going to take. Are you passionate? If you’re not, find something else to do. If you lack passion, don’t open a business! What is this decision going to do to your family? Think about this question for awhile and make sure your family can handle your desire to win. I hope you found these questions helpful. Please feel free to leave a comment and share what you think.