When you start a business, part of your groundwork involves income projections. Many would-be entrepreneurs use those figures to determine exactly when they’ll be able to take the leap and rely solely on their business income for support, but it’s a big mistake.
- Your projections are just an educated guess. It goes without saying that you can’t rely on projected business income when you’re still in the building stages and you have no track record to rely on in creating those projections. Don’t lose sight of that in your excitement over the new venture.
- Relying on start-up income can force bad business decisions. If you hope to succeed, you must be willing to commit that time and effort regardless of returns. But, when you’re dependent on business income to pay the mortgage, you may be pushed to make decisions that favor pulling in quick cash.
Here are just a few of the ways they need for quick cash can negatively impact your business in the long run:
- Taking cash out of the business that you need for marketing, product development or other core business expenses;
- Rushing a product to market before it’s ready because you need revenue; and
- Deciding to take on difficult clients or work outside your preferred niche focus for the paycheck, diverting time and resources from the development of your core business.
Avoiding the Revenue Dependency Trap
One of the most obvious ways to avoid premature dependence on income from your start-up is to hold off on launching until you have an adequate cushion to allow you to live for some time without income if that’s necessary.
Many entrepreneurs jump the gun because they’re eager to get the business off the ground, or because the time is right in the market. If you don’t have the buffer you need to work without income for a while, consider one of these routes:
- Bring on a partner or investor whose contribution will allow you to take a salary before the business is generating adequate income to support you and its own growth. This may be a difficult arrangement to find, and you should be prepared to compromise some control if you’re going to go this route.
- Divide your work time and generate income from another source while you’re building your business. While this will take some time away from your new venture, it will also stabilize the foundation of your business. If you go this route, be sure to divide your time clearly to avoid the damage to productivity that occurs when you’re pulled in too many different directions.
The right solution differs depending on your expenses, the nature of your business, the amount of overhead associated with your new venture, your credit and a variety of other factors. Whichever route is right for you, make sure you’ve clearly identified it before you take the leap.