An important factor when making the leap to becoming your own boss is - how to make sure you can still live your life comfortably.
I would always advise to try and keep a full-time role while developing a product or idea and build up your savings. Then as you need to dedicate more time to the business, try to reduce your hours with your employer.
Many employers are becoming acutely aware that people want to start their own ventures. As such many are offering sabbaticals, flexible hours etc. It is always best to keep the door open, a safety net can help your stress levels no end. It is OK to have a plan B, don't mind the so call inspirational quote telling you to take a chance. Looking after yourself is far more important.
It is also sensible to start to economise a year before you intend to leave. The more you can do in advance to mentally prepare and save, the better a fighting chance your business has. You will be surprised how much stuff you realised you didn't actually need in order to be happy.
One of the biggest reason businesses fail is cash-flow. So why not reduce this risk.
Working capital if you are not aware of the term is basically the funding you need to keep the wheels turning in your business. Try to set at least 30 days before paying suppliers and settling less than 30 days for customers to pay you. Better yet aim for deposits on sales to keep a strong cash-flow aka strong working capital.
In the early stages, you want to make sure you can pay suppliers (including tax authorities) and employees before you pay yourself. That way you build strong relationships that will be flexible with you when times are not as good.
Once your cash flow is stable, you can start to consider paying yourself. Check your current tax-free allowance (in the UK for 2019/2020, this is £12,500). Try to stay within this range for paying yourself e.g. £1,041.66 per month, with a view to taking a dividend after your first trading year (if you have a decent surplus and a limited company). Well worth having a consult with a tax adviser after your first year of trading to do above-board tax planning session.
If you intend to go for investment, bear in mind taking a big salary in proportion to your turnover is a red flag to investors. If you are making £1m in turnover and paying yourself £40k that is ok, but £100k and taking the same salary won’t go down well. Investors want their investment to go into R&D and growth, not to pay for your luxuries:).
While they want you to be able to put a roof over your head, you need to show you are willing to invest in the business too.
Organic growth is the most sustainable
What is attractive to investors is organic growth and sensible overheads. It also means the more value you can build into the business the better valuation you can achieve. Therefore, give away less of your business. Be strategic in your focus.
There are a lot of positives in creating your own business. You can control your hours, work with people you respect and follow a passion. However, it does require a change in attitude towards money.
You will have to think more strategically about discretionary spending. Forgoing that coffee or weekend away will become normal. Your real friends will understand and be supportive.
There is no magic formula to business success, but planning improves your chances of getting through the first few years. Build up your saving, network and make sure you know who your customer is to maximise sales.
Finally get to know your bank manager as you grow, overdrafts are an affordable way to finance and never build a business on a credit card.