Starting my own business: what do I need to know? The number one area that comes up with my clients when considering making a career and lifestyle change is to do with money:
What if I don’t earn enough?
What if I can’t pay my rent?
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It’s completely natural to have these fears.
We all need money to survive in society today. In Maslow’s hierarchy, money sits right at the base of the pyramid. It is a means of fulfilling our most basic physiological needs of food and water, as well as the need to feel safe and secure.
We can fantasise about all sorts of self-actualisation and purpose but if we don’t have these fundamental needs met we’re unlikely to feel comfortable exploring those higher levels of needs.
Beyond that very basic level, however, the question is: what’s really important when it comes to money?
What should you be considering when it comes to money when you’re leaving a job with a comfortable salary and starting up on your own?
1. Why is money important to you?
There are few people who are motivated by money just for money’s sake. (Mr Burns in the Simpsons and Scrooge McDuck come to mind.) Most of us need to dig a little deeper to understand what’s behind this obsession with money.
What is it that money gives you? Security? Financial independence? Is it the ability to buy nice things? To travel? The freedom to live the life you want? To not have to worry about counting the pennies?
I must admit that I’ve gone through a bit of a hippy rebellion against the capitalist world (in my own little way!). I created beliefs around money being ‘bad’, that I didn’t need money to be happy, and that freedom and independence were much more important than earning lots of money.
Now, I’ve reached a new phase in my personal development where I can appreciate money not for the superficial attributes of financial success, prestige and wealth but for all the things it enables me to do. Earning more money means that I can invest more in my business and serve more people. It means that I can feel secure in my own wellbeing so that I can focus wholeheartedly on others. And it means that I can do the things I want to do in my life.
So find out why money is important to you and how it can support other areas of your life, and let those deeper motivations be your guide rather than simply focusing on ‘money’.
2. Work out your break-even numbers
When you start out on your own – whether you’re freelancing or coaching or building a business – you often go to one of two extremes. Either you look to the skies and dream of creating a six-figure business, making your millions, and becoming the next [insert your successful role model here] – or you ignore the money topic entirely and close your eyes to the reality of what revenue you’re actually creating.
In the first iteration of my business, I was taking on big digital marketing contracts and making more money than I had in my full-time job. As I ‘pivoted’ towards a more location-independent model in which I was working with smaller clients and introducing coaching into the mix, my income dropped dramatically. But because of those hippy beliefs that I mentioned and a faith that the money would come eventually, I must admit that I didn’t look very closely at the finances of what I was doing.
In your first year, it’s actually a huge achievement to break even, i.e. to make as much as you are spending. So a good first step is to look at your living costs – rent or mortgage, insurance, groceries, etc. – as well as your business costs – website hosting, software, advertising – and work out how much you need to bring in just to cover your costs.
You may have heard the statistic that most businesses fail in their first year, and in my experience a lot of people definitely give up in that time, so focus on at least breaking even in year one and you’re already ahead of the game!
[You might want to have a listen to my interview with accountant and finance coach Michelle on this topic.]
3. Explore your possible revenue streams
Maybe you have different business ideas that you’re considering, or you’re clear that you want to become a coach or a freelance consultant. Either way, you’ll want to carefully consider the different ways in which you’re going to bring in money.
Let’s say you want to be a coach.
I won’t get into the basic considerations of what problem you’re solving, who your specific target is, and what programmes and services you’re providing to solve that problem – that’s for another post (or series of posts!). But you need to consider: Will you work 1:1 with clients or in groups? Will you run face-to-face workshops or online programmes? Will you work with individual clients or via companies and organisations?
In addition to the coaching itself, where else might you bring in income? Paid speaking engagements? Writing articles? Books or e-books? Physical products? Affiliate commission?
With each option you’re considering, map out some numbers of what you think you might be able to achieve financially. How much would you charge an individual client and how many clients do you think you can get? What about the workshops, how much would you charge and how many can you run?
Then ask yourself: How confident are you that you can bring in this income? What’s the effort you’ll need to put in to generate it? How excited are you about spending your time working on this?
You can’t do everything (at least not right away) but you’ll want to choose a few different income streams to focus on to provide you with a diversified portfolio and to add up to more substantial numbers as well.
4. Don’t just focus on the money
For all this talk of money, if you only look at income-generating activities then you’re missing the bigger picture and you probably won’t create the income you’re hoping for.
In the past, marketing consisted of a TV or print ad that basically said: buy my product. That’s no longer the case today. Marketing and selling is now much more about building relationships. We talk about letting people “know, like and trust” you.
In my case, I would never put up a Facebook ad that told strangers to “buy my coaching for x amount of money”. They have no idea who I am, they might not know even know what coaching is, and I’ve made no effort to understand the challenges they’re facing right now and how I might be able to support them.
Instead, I’ve found success in a much softer approach. I write articles that get published on big media outlets and then when people come across my writing, and the message resonates, they’ll get in touch to see how I might be able to support them. I run webinars and share free resources to help people with a specific problem so that they can see that I have knowledge and expertise to share. And I do both pro bono coaching and unpaid speaking engagements on top of my paid work.
Providing that value for free is about generating exposure, building credibility and getting your message out there. This is what’s going to make those income streams that you’ve identified possible.