Before you wave goodbye to the relative security of a full-time job and put your plans for starting a new business into action, there are a number of financial factors that you should consider carefully.
1. What is the outlook for GDP growth in the country that you are living?
Although economic forecasts are often no more reliable than those that are issued by meteorological experts after the evening news on television every day, it is a good idea to pay attention to what leading forecasters have to say about the state of the economy if you are planning to strike out on your own. Whilst they may not be able to predict the future with any degree of accuracy, they are often right about the general direction that the economy will take and their predictions could help you to fine tune your business plans.
2. How much will you be able to draw as a salary in the first few years, based on forecast turnover and profit margins?
If you are to be able to look forward to a comfortable old age, retirement planning is an area that you cannot afford to put to one side until some indeterminate point in the future. For this reason, you need to work out how much you can afford to contribute to a pension plan every month when you are running your own company and make sure that whatever amount you decide on is enough to keep your fund in good health.
3. Are corporate tax rates likely to change in the near future?
To paraphrase Robert Burns, the best laid plans of entrepreneurs often go awry, especially when governments interfere by moving the goalposts. Predicting which party will have a majority in parliament after the next general election is hard enough, let alone trying to second guess the policies that will be implemented once they are in power, but if you pay careful attention to the pronouncements of key members of parliament over the years, you may be able to stay one step ahead of the competition when it comes to altering your business plans to make the most of the environment in which your company finds itself having to operate.
4. In which direction are interest rates likely to head in the near future?
As with the above three points, this is not an easy one to predict but nobody said being an entrepreneur was easy did they? Because interest rates can affect GDP growth, the value of stocks and shares in which you invest as part of your retirement planning and inflation, among other things, anybody who can predict what the central bank will do next has a big advantage over everybody else. By studying the content of speeches made by members of the policy making committee, you can get a handle on the way that they think and how they are likely to vote when it is time to decide what to do about interest rates.
5. How will your personal expenditure change over the coming years?
When compared to the difficulty of predicting the other factors mentioned in this article, working out how much cash you will need to live a comfortable lifestyle over the next five to ten years may seem like a doddle. However, there are many expenses involved with raising a family that might not be obvious to everyone so if you are planning to have children in the future, or already have some, you should spend some time thinking about everything that you will need to provide your kids with and make sure that your business will enable you to meet all their needs.
About the Author
MoneyVista is a tool used for personal finance and retirement planning. It was developed by the Royal London Group to help existing and potential clients.