If the statistics are to be believed, it’s a decision that is becoming more and more common. More people are taking the plunge to dive into self-employment and reap the benefits that don’t compare to the 9-5 lifestyle.
Make no mistake about it; this is a difficult decision. Budgeting is one area which needs particular attention. With that in mind, we’ve put together today’s post which will look at some hard and fast tips to help you through.
Have at least a 6-month emergency fund
This is critical. When you’re self-employed, there are no safety nets. There are no paid sick days, no paid holiday days, and no guaranteed income. An emergency fund acts as a buffer to help you tide over during tough times.
However, while some people look at this fund to help you out when you’re struggling to get going, there are more indirect concerns. After all, if your new business is struggling to turn a profit in those early months, it’s very easy to make rash decisions. For example, some people might turn their pricing structure on its head to attract new customers. The upshot? You’ve just set your stall for years to come – and it isn’t easy to become known as anything but the budget option for customers.
An emergency fund doesn’t just give you a safety net; it also helps you make better decisions.
Go as granular as can be with your projected expenses
This is a tough one. It’s easy to underestimate how much those small, daily expenses will add up over time. However, it’s essential to be as specific as possible in estimating your costs.
Don’t just think of the big, headline costs, such as how much you’re buying products for. Instead, dive much deeper than that, looking at the so-called “smaller” expenses such as indemnity insurance or even the office coffee! Trust us, these small costs will dwarf other ones over time, and your projections will be out of the window.
Have a clear understanding of your customer’s lifetime value
This is a key metric for any business, but it’s even more critical when you’re self-employed. When you don’t have a guaranteed income, you need to make sure that each customer is worth your time and effort.
Lifetime value is a metric that tells you how much each customer is worth to your business over their relationship with you. It’s essential to have a clear understanding of this number as it will help you make key decisions about your budget.
Create data points for everything
Following on from the previous point, one of the best things you can do is create data points for everything. This will help you to track your progress over time and make necessary changes to your budget as and when required.
For example, let’s say you’re selling products online. You might want to track how much each customer spends, how often they return to your store, and even what other products they purchase. You want to determine what sources are driving customers to your business – and where your marketing budget should be pledged next.
If you don’t collect data, your budgeting will be based on finger in the air forecasting, which, as we all know, seldom works.