You may have had the thought of starting your own business for some time now. It could be that Covid has prolonged your job hunt for longer than you anticipated, or you’re burned out from working your corporate 9-to-6. Perhaps you’ve been finding more fulfilment in your side hustle as compared to your day job. Maybe you would appreciate greater flexibility in your schedule due to family commitments.
Whatever your reason may be, the fact is that an increasing number of people are quitting in the midst of the pandemic to strike out on their own. Incidentally, this trend has dovetailed with technology’s enablement of the gig economy and home-based businesses.
Before you sign your resignation letter make sure that you are ready to make the leap.We lay out the basics of getting ready to start your business.
Evaluate and plan your finances
The main question that you’ll likely have before starting out is, will I be able to survive on my own? Being responsible for your own salary can be a daunting thought, particularly if you’ve been used to a full-time income. It’s a natural concern, and one that you can address with some planning.
First of all, you’ll need to know how much it takes for you to “survive”, so project your expenses. Start from what you already spend: if you don’t already, track your expenses for at least a month. Financial planning apps such as Planner Bee provide an easy way to record your expenses on-the-go, and help break down your spending patterns.
On top of this, evaluate your lifestyle goals. Do you see yourself as continuing to maintain your current lifestyle, or are you willing to make some cuts? Perhaps you’d like to aim for a higher standard of living. Then adjust your projected expenses accordingly.
Having your projected expenses in hand will give you a realistic understanding of the extent to which your business will be able to support your needs, and how much of your income may need to be supplemented by other sources.
Next, calculate how much emergency savings you need to have in reserve. A rough guideline is 6 to 12 months of expenses. You can also tap on the Emergency Fund Calculator to derive a figure, and find out more about considerations surrounding your emergency fund.
You’ll want to give your business a decent runway to take off. A healthy buffer of emergency savings will allow you to focus on growing your business and not worry if it’s making you enough money within the first few months.
Consider what success means for you
When starting your business, keep your motivation in mind.. You could classify these into short-term and long-term goals. For example, if you are setting up an online business selling toys for children, a short-term goal could be to spend more time at home with your children while they’re young. A long-term goal could be building a reputation as a trusted retailer that brings in exclusive and environmentally-friendly products to the Singapore market. Your goals will give you a broader understanding of what to achieve, beyond what you earn financially, to make your business venture a success on your terms.
Decide what to charge for, and how
You’ve already considered your personal expenses; now consider what expenses might look like on the business-front. How much will it cost to set up and run your business? If you’re starting with a small business from home, there may not be much overhead costs. But remember to factor in expenses that a full-time employer might otherwise have covered, such as IT equipment, software subscriptions, medical treatment and insurance. Take note of CPF too – it is compulsory for self-employed persons to contribute to Medisave if your net trade income is more than S$6000.
Following that, you can bring your awareness of your expenses (personal and business) and goals to your plan for your business. Examine the core business, and determine how you want to charge. There are different approaches for how to charge, depending on whether you’re selling a product or service.
For products, you’ll need to consider your profit margin, and preferred market positioning. For example, are you looking to be known for unique and/or high quality goods that sell for a higher price? Or are similar goods being sold by others, and you’re offering a wider variety at a comparable or cheaper price?
As for services, there are a variety of rates that you can offer, the most common of which are usually per hour or per project. Charging per hour works well when your service involves clearly defined hours. On the other hand, charging per project will give you leeway to work out pricing based on factors that may be harder to quantify in terms of hours, such as experience, knowledge and creativity.
The key idea is to price your products or services in ways that will make it possible to cover your expenses, and hopefully, earn you some extra for future growth. Of course, when the business launches, it usually takes time to get off the ground, but that’s what the emergency savings are for. In the longer term, the amount that you earn should ideally meet your financial targets, and in such a way that supports your non-financial goals.
Explore other income sources
Instead of relying on your business to be your sole source of income, diversifying your sources can complement your strategy to build up your business and ensure it is sustainable. For example, you could place funds in low-risk, passive investments such as bonds, fixed deposit accounts or endowment plans that earn you guaranteed interest.
As running your own business may potentially allow you a more flexible schedule, you can also consider side jobs that you can easily take on during pockets of free time. These could include doing deliveries, or filling out marketing surveys. While not intended to be your main source of income, these can be other ways to supplement your earnings while growing your business.
Starting your own business can be an exciting and fulfilling venture. Taking stock of your financial needs and personal goals, plus having a cushion of emergency savings and considering alternative income sources, will help you start off on the right foot and move towards making your business last.