Starting a consulting business is exciting. It can also be incredibly scary: No salary, no employer-paid health insurance and retirement contributions. And there’s no guarantee you’ll succeed. Clearly the risks are big – but so are the potential rewards.
You’ll have to ask yourself many questions before you dive into a project like this. It’s in your best interest to answer them honestly. Here are a few important financial questions to ask yourself from our friend, Denise Neamon, partner at Gaines, Kriner and Elliott LLP:
• How much money will you need to fund this venture? You need to look at how much you’ll need to invest to start the business (i.e. a website and logo, incorporation fees, office space, business cards, furniture and office supplies), as well as your ongoing costs, like salary, website hosting, utilities, and taxes.
• How much savings do you have? At what point do you need to start turning a profit? New businesses take time to get off the ground. In fact, it might take few years to move into positive cash flow territory. As a result, you need to ensure you have adequate financial resources to build the business and cover your living expenses.
• What are the key necessities (both personal and business) you need to fund? When evaluating your budgets, look at both your fixed and variable expenses and identify some areas in which you can cut back. For instance, can you work from home for a while before leasing office space?
• Is your spouse or partner supportive? Getting your family to buy in to your decision is important. And if your spouse or partner has a good job with benefits, even better. This takes some of the pressure off of you to “make it” in a short amount of time.
Besides asking yourself the questions above, Neamon also recommends using the free resources available on the Small Business Administration’s website to see if being an entrepreneur is a good fit for you.