I have lots of clients who have the “intent” to start up, a business venture…. …. selling handbags….selling burgers…. selling health products….
A lot of interesting, fun and lovely ideas….
Some seek my point of view, if they should sell away their house, to fund their dream business…
Some seek my point of view, if they should quit their job, to start their dream business…
Some seek my “money”, as a form of capital to start their dream business…
I met a lot of entrepreneurial people.
My advice to all is that, if you want to set up your own business, you need to have contingency funds that can last you at least for 1 year.
You need to have enough money in your bank account that can last you 1 year, if your business doesn’t generate money.
If not, don’t even think of quitting your job, to start that very business that you aspire.
Yes…Have at least 1 year of contingency funds.
When I meet my clients, I will always do the cashflow statement for them.
Cashflow statement comprises of 2 main elements.
First is inflow, means money going in. Usually, it is a combination of your disposable income (take home pay) and your passive income (money that comes to you, without you actively working for it).
The second broad element is your outflow, which means money going out.
Outflow is divided into 2. One is Fixed Outflow. These cash outflow is something that you cannot control. Every month, there will be a fixed amount going out. Example: Insurance premiums, money given to wife or parents etc.
The second outflow, is called Variable Outflow. These are cash outflows that you can control. Example: Food, Entertainment, Holiday, Transport and Miscellaneous
I will highlight to all these entrepreneurs to be, to have at least 12X their total outflow.
This is the bare minimum. A strategy for anyone to have more savings, is to reduce their variable outflow components each by 10%. This is easily achievable, and most will find that saving that extra, few hundred dollars is very pragmatic and conceivable.
So guys, if you would like to set up a business, and want to quit your very job today, have at least 12 months of your expenses in your bank right now!