Losing 80 Percent of My Income Made Me A Better Entrepreneur- Here’s Why
My rising career as an entrepreneur was all planned out...then I lost my main client. Ouch. Here are some key lessons I learned.
My plan was foolproof – or so I thought. I was going to build a powerhouse financial mentoring firm. My business plan would see me running a $2 million enterprise that included a digital and print media company at the end of five years.
Fast forward three years and I found myself on the brink of shutting down shop and returning to the rat race. The writings were on the wall from day one, but I just wasn’t looking. For three years, I’d managed to survive, and my cash flow trumped what I made at my last job. I was living the life!
But early one morning, I received an email from my largest client (who made up approximately 80 percent of my income), stating that he was taking his business in another direction.
Not only was I devastated by the sudden halt in operations, but I knew deep down inside that my utter financial ruin would follow soon.
It was embarrassing, as I taught personal finance literacy courses to others. What would people think of me? Were my days of being an entrepreneur over?
After a year or so of marketing my butt off and grabbing every opportunity that came my way to stay afloat, I was back on track, and I vowed never to return to that point again.
In retrospect, here’s why I was nearly driven out of business:
1. Lack of cash reserves
Clients don’t always pay on time. Some months are slower than others, and financial emergencies always seem to arise at the most inopportune times. In the wonderful world of entrepreneurship, you can no longer rely on that bi-weekly check to bail you out each time you hit a rough patch.
I say go into battle with six months to a year of expenses saved up since you probably won’t be raking in massive amounts of dough in the first few months.
2. Buried in a mountain of debt
Creditors don’t care if your business is in a slump. They want their money on time, or they’ll be sure to let the credit bureaus know. If you have large amounts of outstanding debt obligations, chances are you’ll have a hard time keeping up.
There are repayment assistance programs to help you get over the hump, but most are only available for a year or less. You’re on your own after that. Another tip: don’t view your credit cards as an emergency fund, or you’ll only exacerbate the problem.
3. Spending plan not intact
Before I took the leap, I would simply pay my bills and vow to save whatever was left after I indulged in life’s simple pleasures. Of course, that never worked because I was making the critical mistake of not budgeting or having a plan for my money before it even hit my account. End result: no accountability, minimal savings, and hundreds each month in unnecessary expenditures.
4. No funds for research and development
Continuous learning and improvement are the keys to success as an entrepreneur. Too bad I had to spend countless hours wading through all the pointless minutiae to find free resources that were worthwhile because I hadn’t saved any money beforehand to invest in myself.
Before Taking the Leap
- Set financial goals for your business. That way, you’ll be motivated to give it all you’ve got and stay afloat during those rocky months.
- Create a spending plan and stick to it. If you can’t manage your money when you have a consistent income coming in, how do you expect to survive on a variable income?
- Downsize! Remember, short-term pain for long-term gain.
- Get out of the hole. Ax as many unnecessary expenses as you can from your budget and use these funds to start attacking your outstanding debts.
- Save like your life depends on it. Life happens, and if you aren’t prepared, your finances will take a hit.
- Use financial windfalls wisely. An inheritance or hefty tax return shouldn’t be used as a means to fund a shopping spree. A better option: use the funds to wipe out debt or save for a rainy day.
- Protect yourself. You’ll need to enroll in a health insurance plan and purchase a life insurance policy if you haven’t already done so. Forgoing either could be costly for both you and your family.
A Final Thought
I now market myself constantly because I’d rather have too many clients than too few. And I live off of a fraction of my income, so that I can easily downsize if things take a turn for the worse.
Entrepreneurship is very stressful, but it’s worth it if you’re willing to put in the work. But first, make sure you get in prepared for an unpleasant turn of events. Your mind, body, and wallet will thank you.