Deciding to go it alone in business can be exhilarating. It is a time to test yourself, to take control of your destiny and see what you can achieve.
But the experience of running your own business will be far less exciting if you are under financial stress. There is work to be done while you are still an employee, so don’t run for the exit door until you have made the necessary preparations. You might also want to discuss your plans with a financial adviser sooner, rather than later.
Seven tips before leaving your job
Sort out your home loan
Check that you have a competitive interest rate on your home loan and consider taking an interest-only mortgage for a while to reduce your outgoings. You should also think about a mortgage with a redraw facility. The important point is to get your home loan approved before you start, says Patrick Canion, chief executive officer at ipac Western Australia. The reason? “Once you have left your employer it is hard to get a mortgage,” warns Adele Martin, managing director and senior wealth adviser at Experience Wealth.
Check your life insurance policies
This is particularly the case with income protection insurance, which will pay an income should you not be able to work due to an accident or ill health. In order to provide this type of cover, insurers want to see a steady, regular income stream – something you may not have in the early days of running your own business.
Build up your savings
Prepare for the fact that your income may be lumpy in the early days by building up some savings you can tap into if you run short. This could be an emergency fund, a redraw facility or an overdraft facility, says Mima Rahaman, a senior financial adviser at ThinkWealth Management. To calculate the size of an emergency fund, Canion suggests estimating the minimum amount required to fund your day-to-day expenses.
Be realistic about the set-up costs
Do your homework on running a small business from a practical point of view. Be realistic about the costs involved and take into account that there are bound to be hidden costs. You will also need to ensure you understand exactly what you will need to do yourself, such as the accounting, recommends Fiona Willard, financial coach at Foundation Partners. Consult widely. “People are happy to give their success stories and their horror stories,” Willard says, “so talk to as many people as you can.”
Research different structures
Consider how to structure your company as different configurations will attract different tax rates.
Get a mentor
You really will be on your own, so it’s a good idea to have someone to bounce ideas off and who can help guide you through your new venture. Indeed you might need more than one mentor as you and your business progress. “You might get to a certain stage, and you’ve evolved beyond them or changed direction,” Willard says, adding that she has never paid for someone to be a sounding board.
As Willard notes: “If you don’t believe in yourself, no one else is going to.”
Case study: Making a third-generation family business profitable again
When Eugenie Pepper (pictured) and husband Shane took over his family’s babywear business in 2012, it was something of a leap of faith.
“The market had got incredibly competitive and the business had not been doing so well,” says Eugenie, who had already been running her own art consultancy business for many years.
Plum Collections had been established by Shane’s grandparents back in 1965. Although the third-generation business came with a sizeable debt, they saw an opportunity.
“In some ways it was a risk, but we were really committed to making it work,” says Eugenie.
Taking out a business loan through their mortgage – a frustrating process for the new business owners – they set about introducing new products such as their popular sleep bag, which is now stocked by major retailers including Baby Bunting.
That product helped transform the business, which recorded turnover of $4 million in 2015.
Despite the heady growth, cash flow still remains a challenge.
“It’s a struggle,” says Eugenie. “It’s that balancing act of getting those payments in so you can pay other people.”
And while $4 million sounds like a lot of money, she says most of the profits are reinvested back into the business.
The Sydney mum-of-two says the best thing about running her own business has been the flexibility it offers, allowing her to be there for her young children.
Her advice to other women thinking of taking the leap?
“Don’t procrastinate, just do it, even if you start small. Sometimes you have to start small and keep that part-time job.”
Eugenie also strongly recommends putting aside a decent chunk of savings to ensure you can survive any hard times.
“A lot of small businesses are at that point where if one thing goes wrong – if your shipment’s late or one of your major suppliers stops purchasing – you don’t have that security net.”
Case study: Larissa Ham