Welcome back to my Taking the Plunge series where I discuss the process I went through as I decided to give up my corporate job and pursue the life of an entrepreneur.
I’ve written of my love for budgeting before and am a proud budgeting nerd. When Mrs. Frugal Rules and I were looking at the possibility of running our own business, budgeting was at the top of the list in terms of asking if we could handle it. Nearly a year after making the decision to take the plunge I can safely say balancing budgeting and being an entrepreneur CAN be done.
Becoming an Entrepreneur is Not For the Weak of Heart
When it comes to running your own business you learn quickly how much of it is up to you…EVERYTHING is on your shoulders and I mean everything! No one is there to direct your activity; you must do that for yourself.
I learned awfully quickly that having a roof over our heads and food in our kitchen was a great motivator. You have to learn to accept rejection and move on without dwelling on it. You have to learn to plan things ahead and have a vision, while still being flexible enough to change on the fly. If you are fortunate and your business plan is a good one, your business will grow to the point where other good “problems” may arise; such as needing to have a CPA do your taxes for you, or getting an attorney to LLC or incorporate yourself.
You may even need to hire employees to handle your growth. You may even someday find yourself needing corporate tax services. Thankfully we have services like Freshbooks and Personal Capital that help us manage our payment times as well as managements in order to save us time and money. When you get to that point of needing help, hard work, strategy, planning, imagination and budgeting will have gotten you there. You have to learn that clients will be unclear about what they expect and then say they want you to redo things because it’s not what they want. You have to learn that well-meaning people will say they want to do business with you and then you hear nothing from them ever again.
Most importantly you learn that you ALWAYS have to be meeting new people and networking. All of these things can play on your emotions and can be wearing on a person. I believe, though, that we went in with our eyes wide open and in spite of some challenging days, are loving every minute of it. What lies beneath all of this is the power of budgeting as you have to budget all of your resources and not just money. We’ve learned how to budget our resources through our household budget which has set us on solid ground.
Budgeting Needs to Become Second Nature
When my wife and I were in serious discussion about taking the plunge we looked long and hard at our budget. We looked at what could be cut and what was essential. Since we’ve lived with a budget for nearly ten years, this was second nature for us. The difference this time was that our budgeting had to be vigilant. There was almost no wiggle room. We looked for budgeting tips and ways we could stretch our budget further and looked long and hard at our emergency fund and what might happen if this whole entrepreneur thing were to blow up in our faces. Little things like canceling our cable and switching to a reliable T1 connection with a subscription to Netflix really helped.
Where we sat when we decided to take the plunge was a fully-funded emergency fund to cover three months of living expenses and a separate emergency fund that covered six months of mortgage payments. Now, some PF bloggers might say that’s way too little, but I was and still am comfortable with it. We also knew that we would continue to save money until we reached six months savings for our main emergency fund and nine to twelve months for our second emergency fund. With this cushion in place, we decided that we could take the risk, but that budgeting was going to have to be something at the forefront of our minds for quite some time as we develop our business. This meant tracking expenses and watching where our money was really going so we would not have to dip into our emergency fund.
Lack of Money Flow is Not a Budgeting Issue
A common excuse I hear from those that don’t like to budget is that they do not have the money or simply that they do not like budgeting at all. I get the second point as not everyone is a budgeting nerd like me and that’s completely fine. But, that said, as long as you have some mindset about saving money, you can budget. I can understand lack of money flow and the feeling that budgeting just won’t work.
Our income fluctuates all the time, but budgeting can still be done. When you have a paycheck come in you’re already creating a budget in your mind, whether you know it or not, as to where the funds will go. That is what I like to call the Minimum Needs budget, or the “what you need to keep the lights on, food on the table and a place to live” budget. If you’re making enough to cover those things then start budgeting around that. The beauty of the Minimum Needs budget is that when we bring in extra money we get the fun of deciding where it will go. Speaking as an entrepreneur, who regularly experiences irregular cash flow, I can say that saving that money becomes even more important so you can smooth out leaner times.
Taking the Plunge to running our own business was not a decision made lightly and is not one we would’ve made if we were not already happily budgeting our income. There can be many risks when it comes to running your own business, but adding lack of a budget to it makes it even riskier. If you would like to read more about budgeting when you have irregular income, please read my post for Kim at Eyes On The Dollar that I wrote several months ago that gives the more practical side of budgeting and how to do it given this situation.
Do you run your own business or have you thought of running one someday? If you do now, how important is budgeting to your business? Are there any questions you’d like to see me cover in this Taking the Plunge series? If so, just put them in the comments below.
Photo courtesy of: Linusb4