When I started to tell you last week about how I got into running my own business, I had a bunch of nice responses, including a question about money.
So today is about money. Let’s cut straight to something that I know (based on what people replied) is on many people’s mind when it comes to making a big career shift: How do you pay for it, i.e. how do you finance the time with potentially no or a much lower income than the previously predictable paycheque.
Well, I’m glad you asked. I love talking about money and I’m a big believer in transparency.
I will say this before I give you an answer: Money is a huge topic and there are so many elements at play. I can’t cover them all in one post, but let me reassure you that over time I will tackle money mindset, savings, investment, family finances, and all that stuff that factors into your decision to ‘take the plunge’ and change your career. (not financial advice, but my opinion and experience)
None of them are trivial, they all need to be considered and everyone’s situation is unique. I’ll share what my setup was and what worked, what didn’t and what – regardless of your specific numbers – I found helpful or essential to put in place.
For today, let’s focus on the starting point. This is where I was at when I started my career coaching business 4 years ago in August 2022.
My job
I had a full-time job at Snowflake, it was fully remote, well paid and it allowed me to put a good chunk of money into savings each month, save for retirement through the corporate retirement scheme and invest money into my own private portfolio (because I don’t want to rely on government pension or even corporate providers in the long-term).
In terms of my salary, I lived on about 50% of the money I made while renting in London (shared expenses) and put the rest into savings, investment and retirement.
My family
I didn’t have a child at the time. That makes a huge difference and it means my expenses and earning capacity (full-time) were very predictable.
Housing
We rented a house in London at the time, I bought a house in a rural area in the North East in July 2022. Once we moved to the countryside full-time our expenses reduced in some areas after having 6 months of rent + mortgage.
Other stuff
I had no debt. I’ve never had a credit card or any debt other than my mortgage. I mention this not to judge but because it’s another big factor. Apart from my house that is not yet paid off, I own everything outright, which is a big relief and again means more control over costs.
Healthcare is free in the UK. Going to the doctor doesn’t cost anything. While I don’t want to get ill or injured and I am a healthy person overall, my health and wellbeing and the healthcare I may need is not something I ever lose sleep over.
The Business
I started my business on the side after a conversation with my manager. Side hustles (sometimes called “outside activity”) are often covered in your employment contract and the best approach is to get this signed off properly rather than hiding it. If you’re not in competition with your employer in what you do, it’s often fairly straightforward.
Some people rent AirB&Bs, are landlords or restore furniture on the side, so there is no reason to feel queasy about starting a side business, as long as it stays within the agreed boundaries (type of activity, certain limits on hours spent, etc.).
Growing the Business
My business ran on the side for almost two years before I went “all in”. That time gave me the space to see if there was interest in what I was offering (there was!) and what pricing and service structure would work.
I also had a baby during that time which, of course, impacted how much time I could and wanted to spend on the business. (and because it matters: Snowflake offered 12 months maternity leave with 6 months at 100% pay).
How do you finance starting a business?
Returning to the original question of how to finance starting a business: there is no straight answer because it really depends on the business. My business didn’t cost much to start. Maybe £200 in registration and admin fees.
When I went “all in” (more detail on what that meant in the next email) I had an emergency fund to cover expenses for several months. Andy and I always shared our everyday expenses, and I was confident that if I needed a job in a hurry, I could reach out to my network and find a job within a couple of months.
I’m reluctant to give you a number because that number depends on your expenses, dependents (kids, family), and your risk appetite. For me it was important to have at least 6 months of expenses covered with zero additional income. Some people feel fine with 3 months, others prefer 12.
Budgeting
A really good first step towards this whole thing is something I did before I moved to London in 2019: I sat down and did a budget. Not with every single purchase in it, but with categories of monthly expenses so I’d know my overall cost of living versus income.
If you spend a bit of time getting clear on ALL of your essential and non-essential costs, you’ll know what you MUST cover to keep the lights on, food on the table and a roof over your head. Building an emergency fund plus an extra cushion to cover those expenses for several months is a very helpful start for venturing out on your own.
Next week I’ll tell you more about what “all in” and “full-time” looks like in my business (spoiler: it’s not 70 hours a week. Not even 40).