3 Steps To Preparing For Self-Employment

It's a massive jump, and not for the faint-hearted, but more and more people are starting their own businesses.

With the economy as fragile as it is at the moment, this is clearly encouraging to see. At the same time, the risks remain the same, and you don’t need to be reminded of all the possible pitfalls when it comes to setting up a new business.

One of these pitfalls is having enough liquidity to continue when the going gets tough. This article will focus on options for getting your personal finances in order before jumping into a life of self-employment.

1. You need savings in the bank

First and foremost, you need some savings in the bank. Sure, you might be ultra-confident that your big idea is going to make you rich within the first few months, however, all sorts of obstacles can get in the way. We’re not saying your business idea is not going to happen, but just be prepared to be met with the typical barriers that can make business growth slower than anticipated. It might be the cost of rent, delayed profits or even just the cost of how you securely store office equipment  – it all adds up.

This means you simply must have backup funds. If things aren’t going to plan in those first few months, you need enough savings to not only plug the gaps in your business, but your personal finances as well. After all, if your business isn’t performing, you are effectively not taking a salary.

A general rule of thumb is to have at least six months’ worth of expenses in your bank account, although if you can have even more, you will be better placed to build that cushion for yourself and give your business more time to become successful.

2. You might need to think about how to get there quicker

Following on from above, it won’t come as a surprise to hear that it can be very difficult to gather funds in the first place. After all, we all know the state of the economy, and for some of us, having disposable income at the end of the month is an utter dream.

Some people may dabble in the stock market, while others may try betting arbitrage. Sure, you may not regard these as long-term approaches, but in the interim, they can help you get to that self-employed status much faster.

It’s also important to take a deep look at alternative investment opportunities. For example, you may be able to secure investments in your business through crowd equity.

3. Tone down your expenses

Of course, it’s not just about your income; your expenses can make your path easier as well. It’s amazing how many subscriptions most of us have tucked down the sofa, or so-called luxuries we have that are hampering our bank balances at the end of each and every month.

Before you take the plunge to become self-employed, conduct a sincere audit of your personal finances. Not only will this allow you to save more in the lead-up to the big move, but it will also relieve a lot of stress as you bid to make your new business work.

Please note that this article does not in any way constitute financial advice.