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Friday Finance: From Employee to Entrepreneur

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From Employee to Entrepreneur:  Preparing Your Finances for Transition. Considering a life-changing leap into entrepreneurship? Well here are some things to consider before you jump

Friday Finance
From Employee to Entrepreneur:  Preparing Your Finances for Transition
By Tamika Y. Richeson

Considering a life-changing leap into entrepreneurship? Well here are some things to consider before you jump.  Many women with side-hustles are already experiencing profits from their products or services while taking care of their personal monthly expenses through their full-time job.  The challenge is creating a strategy for going into business for yourself full-time while being able to cover your monthly expenses.

If you’re ready to quit your day job and pursue your business full-time, first consider your monthly expenses and multiply that by six in order to calculate how much money you will need for six months.  We refer to this as your “six month cushion” which will cover your monthly expenses and costs for your business.  Then take a good, honest look at your spending habits and consider cutting back in some areas. Don’t be unrealistic about what you can cut, but don’t resist the potential for change. For instance, if you just have to have a cup of Starbucks coffee every morning, consider buying a bag of Starbucks Coffee and brewing it on your own rather than paying the extra costs to actually go to Starbucks.  Remember, any sacrifices or compromises you make today is really an investment in your future.

Now look at additional sources of income other than the income you make from your day job.  For instance, if you are married, you can calculate your spouse’s income into the equation, or if you offer some freelance work or service besides your side hustle, that too would qualify as an additional source of income.  The key is to make use of your resources so you won’t end up in over your head.  Secondly, are there any other sources of cash you can tap into such as refinancing your home or a personal loan from the bank? Or do you have friends or family members who really believe in your company and can offer their support with a monetary gift?  Consider where you can exhaust your resources and do extra to build your cushion.

Next, create a personal and business budget. If you can afford it, consider hiring a financial planner, especially if you have any extensive debt. The planner can create a plan to get you on the right track and help you get rid of outstanding debt, while also holding you accountable to your goals. If this is a costly option, consider going to your local library and checking out some personal finance books that help you scale down your debt, boost your credit score and help you get funding.  If your profits don’t exceed your expenses, then consider allowing time for your profits to grow.  The more your personal finances improve, the better your chances of having more money to save for your cushion. Figure out how much money you are able to save each month by dividing the figure needed for your six-month cushion by the amount you are able to save each month.

Remember that transitioning your finances for a new business venture takes time. Waiting is the hard part, but it is also the part that drives your desire to save as much as you can in order to reach the goal. When making plans for your big move, be realistic and be willing to make a temporary change for a permanent gain. The freedom of being your own boss requires you to make boss-like, responsible decisions that are profitable for your company and financially sound.  So this Friday night, opt out of a night on the town and instead, run some bath water, make a cup of tea, and light a candle for a Friday Finance Personal Reflection date with yourself. Consider these tips and start planning your strategy for your escape to freedom!

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