When you're starting a business, there may be a period when you don’t earn much profit.
You need to plan how you’ll manage your personal finances during this time. So, let’s discuss a couple strategies you can use to cover your expenses while your business ramps up.
Timeline to Profitability
Before discussing strategies, let's talk about what to expect in terms of the timeline.
How long will it take for your business to start earning the income you need to pay your living expenses?
If you launch a business from scratch, you really don’t know. There are too many variables. You may not even know if there’s demand for your product or service.
If you launch a franchise, then there’s usually a proven market demand and a business launch blueprint you can follow. This gives you a much clearer idea of the timeline you can expect.
Even with a franchise, your timeline still depends on a few factors: the nature of your franchise, your role in the franchise, your amount of personal living expenses, and whether you’re a single unit owner or an area developer.
You can consult an FDD for guidance. But realistically, you’re going to be hard pressed to find these answers in FDDs alone. I’m a franchise consultant, so I may be biased, but I highly recommend working with a consultant (me or someone else). A franchise consultant can help you find a business opportunity where the timeline to profitability aligns with your financial constraints and personal goals.
Strategy 1: Use Your Savings
If you’ve saved diligently over the years, then you’ve given yourself a valuable tool. You can use your savings as a buffer to get through a short time period with little to no income.
If you plan to use your savings, make sure that you have more savings available than you think you’ll need. You want to leave a buffer so that you can cover an unexpected expense. That might include an emergency medical procedure, or an unforeseen $5,000 cost in your business location.
We can anticipate most of our expenses, but there's always going to be some percentage of expenses that we just don't see coming. All we can do is assume that this percentage exists and plan accordingly.
Your personal savings is great for a short period of time. However, if you have a long path towards profitability, you probably want to use other strategies in conjunction so you don't deplete your savings.
Strategy 2: Use Your Investments
Stocks, real estate, or other investments can also serve as a financial buffer.
I recommend that you only use investments that you have set aside specifically for starting a business or for personal use.
You should leave your investments alone if they are earmarked for specific goals like retirement or your children's college funds.
I don't want you to spend money that would cause you distress if lost. You'll sleep better at night, and you're also protecting the things that are important to you.
Additionally, if you withdraw from your retirement account or some other designated account, you can get penalized. That’s something you would also want to consider.
Strategy 3: Keep Your Job or Side Hustle
A wonderful way to manage your personal finances while starting a franchise is to retain your full-time job or use a side hustle.
This strategy gives you financial stability. It works as a safety net by reducing or eliminating the need to tap into your personal savings or investments. Plus, if you have employee benefits at your job like health insurance, you can continue enjoying those benefits that you and your family are used to.
There is a downside: This approach can lead to burnout.
If you're leaning towards this strategy, I recommend that you prioritize your tasks. Make sure you do the work that only you can do, and then delegate as much as you can. This will help you avoid burning yourself out.
It's also a good idea to set a timeline for how long you will spend doing both jobs. This will give you a defined period where you can expect to work hard, and a light at the end of the tunnel to motivate you.
I have a pattern of starting a new business about every five years on top of my full-time income. When I start a new business, I know that most of my time will be spent on the front-end setting it up. That means, I have to work a lot of hours per week. To make things work, I set a goal to have the new business up and running within two months (or whatever time frame I estimate for the business). So I know I have to work hard for a certain timeframe, and then I can take the pressure off. I learned this by not doing this in the past. I got burned out, and I was less effective.
Strategy 4: Lean on Your Spouse’s Income
If you're married, you can rely on your spouse for income. There are a few factors to consider here.
First, your spouse would need to have enough income to cover your living expenses while you focus on your business.
Second, make sure your spouse is fully on board with the vision for the franchise. Ideally, they will see the franchise as a valuable long-term investment.
Even if they're not completely on board, leaning on your spouse’s income can still work. In this case, it's crucial to appreciate that your spouse is supporting you with something that is important to you. To keep the balance in your relationship, you should therefore support your spouse with things that are important to them.
That might mean doing more work around the house, cooking meals, and taking on extra responsibilities like looking after your kids. Also, restrain yourself from any unnecessary consumer spending that focuses on you and not your spouse. All this will help make sure your spouse feels appreciated and valued. That’s vital so that your spouse doesn’t feel taken advantage of.
This can be a stressful time in both of your lives, since you're potentially living slightly above your means. To keep harmony, communicate regularly. Make sure your spouse feels comfortable with the temporary arrangement, and make sure they feel appreciated.
Strategy 5: Take a Hybrid Approach
Most people end up taking a hybrid approach. This means you might dip into your savings just a bit, reduce your job from full-time to part-time, and lean on your spouse just a little.
This is the most realistic scenario that I see among most of my candidates.
The benefit of this approach is that you effectively reduce the negative side effects. This makes the side effects less noticeable and more manageable.
Conclusion
Each of these strategies has advantages and challenges. The right approach for you will depend on your personal financial situation, the franchise you're entering, your relationship with your spouse, and your tolerance for risk and hard work.
Starting a franchise is a marathon, not a sprint. You don’t want to excessively stress yourself, your relationship, or your finances at any point during the marathon.
So don’t bite off more than you can chew. Don’t do something that will make you miserable because “it’s just the short term.”
Choose a franchise that you can afford, and choose a strategy to get through the early months that won’t overburden you.
If you’re still wondering if you’re financially ready to start a franchise, I’m here to help.
Please book a free 15-minute consultation. We can explore franchise options that fit your budget and goals. And, if franchising does not make sense for you, I’ll make sure to point you in the right direction.