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• Financing Types |
Going from Pay Check to Payoff: Making the Transition from a Job to 5. Anticipate the Problem in Your Business Plan
You will be better prepared to weather startup anxieties when you know the point at which you will be able to “pay yourself” from business profits, rather than from diminishing loan or financial resources. You may not be totally relaxed during the period, but at least you will know what to expect. Calculate how much you need for normal living expenses, and plan to "pay yourself” from your loan proceeds or savings when you make your financial projections. You know you will continue eating. Rent or mortgage payments still will be due each month. You have to keep the electricity on and the telephone hooked up. Premi-ums for your auto insurance will keep coming due. That's just life, and don't want to overlook or minimize those facts in the euphoria of starting your new business. A business plan will keep those realities in focus. Business advisors usually recommend setting aside anywhere from six months to two years of living expenses to cover your daily living expenses. That, of course, is sound advice, but not always possible. New entrepreneurs often can't set aside large amounts of capital for ex-tended periods of living expenses. A good plan, however, will help you address the fact that you will have a period when you receive no income. That knowledge will help you come up with creative ways to deal with the situation. Your business plan will make your “dream” real. It will help you know that the short-term sacrifices you're making ultimately will be rewarded. The plan also will point out when you can expect problem periods, such when you have no regular pay check. The balance of minimum income in the early phases of your business combined with the fruits of success will bring a new perspective to how you view your non-business expenses. When you incorporate your necessary living expenses into your financial projections-either directly or indirectly-you can make allowances to “pay your-self” a salary from your loan or savings. At the same time, it likely will prompt you to find new ways you can be frugal to cut down on monthly expenditures. It will be much easier to ruthlessly cut down on unnecessary expenses once you've clearly articulated the rewards you expect of your business. For ex-ample, it will much easier drive the old car another year or two when you know it will help you attain you long-term dream of owning a business. Is it really important to eat out at expensive restaurants quite so often? Maybe the new 60” HDTV television set you would like to buy can wait. Could you sell that boat you use only a few times a year in order to put more cash in your business? A good business plan will bring those and other financial issues into focus. It will help blend personal lifestyle issues with your business needs and dreams. The plan will prepare you to strategically approach both personal and business goals with a unified campaign of action. Doing so inevitably will put short-term anxieties over little or no income into a more endurable perspective.
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