Building a business can be draining – both emotionally and financially.
On the emotional side, we’ve previously developed a Well-Being Checklist to help business owners determine what their needs are and if they’re being met.
As obvious as it may sound, the emotional toll of building a business tends to increase if the financial side is not sustainable.
With that in mind, today’s post is all about understanding how to determine what your financial runway is so you can know how much you’re investing and how much longer you can afford to do so.
Check out the video below:
Know Your Runway
Your financial runway is essentially the taking off point for your business. Determining your runway starts with a simple question: “How much more cash do you have?”
Once you have that answer, you then want to look at the expenses you’re responsible for – these should include both business and personal expenses.
Once you have that total, you then combine both data points to effectively determine how many more months you have if you continue to earn at your current rate.
At the start of building a business, it’s not uncommon to be burning without earning. If that’s the case, this runway calculation will help you determine how much longer you can afford to do so.
Starting From Scratch
If you’re interested in starting a business but don’t have sufficient savings to allow for a proper runway, it’s often best to wait until you do have money you can invest. If the cash you have on-hand only allows for a very short runway, this increased stress may corrupt your already small window and rob you of a fair shot at success.
Therefore, if you’re thinking of leaving an earning situation to start a business, be sure the timing is right. While you may want nothing more than to leave your job and do it on your own ASAP, remember that there are few things more sad than having to go back to the same job you left behind because you didn’t have enough of a runway to get off the ground.
Don’t put undue pressure on an already stressful move by not having a sufficient financial runway to invest in your ultimate success. Consider starting this business on the side until it can sustainably support you.
Short-Term vs. Long-Term
As you do build up a business, it’s also important to recognize that your short-term and long-term goals may not completely overlap.
While it’s important to have a long-term vision of what you’re working towards, your main focus at the beginning should be to make sure you are sustainable. Without that sustainability, you may not even make it to the long-term.
Focus on your stability first so you can see your long-term goals through.
So when you’re at the beginning of your runway, understand that you may have to do things that you don’t necessarily want to do long-term. If those things can help you pay the bills as you flesh out your long-term vision, it’ll all be worth it in the end.
Want help calculating your own financial runway? Feel free to apply for one of my complimentary diagnostic sessions and we can review this concept and uncover anything else that might be holding your business back.