Can I afford to start my own business?

financial financial planning
Can I afford to start my own business

“I’d love to start my own business, but I can’t afford to”

I’ve heard this so many times from colleagues and mentees.

Fear of losing money, or getting into debt is one of the biggest fears around starting your own business.

In response, I would ask: 

Do you know how much you’re spending and how long would you need to feel comfortable having your bills covered until your business starts to make money?

Taking this first step to properly look at your finances will help you understand IF it's possible and if so, when.

To avoid getting yourself into debt, it is helpful to have a savings pot that will cover your bills while you get your business up and running. There will also be some set-up costs as well. You will want to understand two things:

  • What is the minimum amount you need to have saved
  • How long would you like to have your bills covered

Now, self-employment isn’t right for everyone, right now – however, at this stage, we’re just exploring the possibilities, to help you understand your options.


Let’s start with the basics:

How long would you like your buffer to be?

Understanding that it will take time for your new venture to make enough money to cover your bills etc, to avoid getting into debt you’ll want to allow yourself enough money to cover your bills in the meantime.

How long this "buffer period" is, depends on your financial circumstances and how you feel about financial risk. 

I quit my day job twice.

The first time, I thought 6 months would be enough time to work out if I could make my business idea fly. Within that time I’d know if I had a business that could make money to cover my bills, or it would give me enough time to find another job if it didn’t work out.

6 months was a bit short. Even though I’d done plenty of prep before I quit my day job, it took time to get things up and running. During this time, the bank balance kept ticking down, and my fears crept in, I started worrying about covering my bills, and then started worrying about how long it might take me to get another job. Perhaps if I had a bit longer of a buffer, I could have launched my business idea – perhaps not.  

The second time, 10 years later I had a slightly different approach.

I'd learnt it wasn't just about covering your bills, it is also about giving yourself the headspace to explore what self-employment looks like. I wanted to give myself 12 months to give it a real shot.

I set myself a rule, I'd not click on job ads, and when job offers came my way, I felt empowered to say no, even at the time they would have been the safe/ easy option. 

If you’re in a relationship, it is important to discuss the timeframe with your partner as well. It can be difficult when income isn’t as fast flowing as expected, mentees have felt pressure from their partner to “just get a temporary job”. Having a financial and mental buffer agreed up front, will help give you the time and space you need.

How long you want your buffer to be will be personal to you based on your comfort levels. Give yourself enough space so you're not worried about covering bills, or quitting prematurely because you're worried it could take a few months to find a job.  

How much of a savings buffer do I need?

You'll need to know two things:

  • # buffer months
  • Your monthly spend: bills/expenses
  • Estimated set-up cost

Tally up all your spend across a year - this includes things like going out, paying bills etc. To calculate your estimated monthly spend, divide your annual amount by 12.

For example: If your spend is around £24k per year – your estimated monthly spend is around £2k/month.

If you want your buffer to be 6 months, you’d need at least 6 x £2k = £12k savings to cover your spend.

Set-up costs will vary depending on the type of business you want to embark on. Things like insurance, creating a website, buying equipment etc can start to add up.

I'll create a Ballpark Costs blog in the future, but for now, based on being something like a freelancer/ consultant, that doesn’t have a lot of set-up costs, estimated expenses are likely to be at least £3k (software, website, accountant, LinkedIn Pro account etc).

So, £12k + £3k = you’d want at least £15k of savings to allow yourself enough time to start earning money.

What date could I hand in my resignation?

That will depend on how far away you are from reaching your savings goal.

Work out how many months it will take you to save up enough money so you feel you can comfortably manage without any income.

Set a date in the diary for your “leaving drinks for day job”. Having this date clear in your mind, should help you to reach your savings goal faster.

As this date approaches, you'll be able to decide if you want to carry on a bit longer where you are, or make a change - which could be a change of career/role or starting your own business.

What do I do next?

Work out how much you’re spending, how long you feel your buffer should be – and work out how long it will be until you reach your savings goal.

You’re not committing to quitting your job at this point – just moving towards working out your options.

If you're interested in taking the next step, check out my Financial Foundations course, to help you understand what your options could be.

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