Laid off? This may be the perfect chance to reinvent yourself and start a small business. But if you're going to go from being an employee to being an entrepreneur, there are two main problems to starting a small business: getting your small business to make money and paying your bills and living expenses in the meantime.
Here's a discussion of these two main problems to starting a small business and how you can overcome them.
Getting Your Small Business to Make Money
Far too many times I see and/or hear from people who sink their time and money into small businesses that are losers. Why do they do it? Because they wanted to do a particular thing and forgot the basic law of business profitably - there has to be a market demand. It doesn't matter if you're a supremely talented butcher if you set up your meat shop in a strictly vegetarian town!
The first question you need to ask yourself, whether you're considering buying an existing business or starting a small business from scratch is, "How is this business going to make money?" The second question is, "How much money will it make?" You need to know these answers if this is how you expect to make your living.
Possible Solutions to Getting Your Small Business to Make Money
1. Do your market research.
I can't emphasize this first point enough. The market comes first; your ideas and/or wishes have to come second (or even third). You simply can't start a successful business if there are not enough people willing and able to buy your products or services in your service area.
Market research, is, as you saw in the previous point, the core of a business plan and a business plan is your best protection against business heartbreak.
Of the many reasons to work through a business plan, the main one is this; when you're done, you'll know whether or not your proposed business idea can be turned into a profitable small business.
3. Buy into a profitable franchise rather than starting a small business from scratch.
Profitable franchises are profitable because someone else has worked through the plan, smoothed out all the kinks and come up with something that makes money. If you have the money to buy into a profitable franchise and are the kind of person that would make a good franchisee, this can be the ideal solution for you. See Should You Buy a Franchise?
New Businesses Don't Make Money
With the possible exception of profitable franchises, it normally takes anywhere from six months to several years for new businesses to become profitable businesses. So one of the main problems for people starting small businesses is paying their bills until their new business starts to make money. What can you do?
Possible Solutions to New Businesses Don't Make Money
1. Have a supportive spouse.
For many people starting a small business, this is the best solution. The working spouse is able to cover the living expenses and contribute to the cost of starting a new business.
2. Use your savings.
Many people find they need to use some portion of their savings to keep themselves and their families afloat when they're starting a small business. If you look at 8 Sources of Business Start Up Money, you'll see that a person's own pockets are the most common source of start up money, whether from savings, re-mortgaging a home, or selling property.
Face it; you can't live on air for months on end while you're building your new business up to the point that it makes money. Don't dismiss bank loans as a source of funds. While money is tight, the banks have said repeatedly that they are lending to small businesses with strong business plans. Or perhaps a line of credit will do the trick.
4. Use the Employment Insurance advantage.
If you are currently receiving Employment Insurance now or have received Employment Insurance benefits within the last three years (five years if your Benefits period included a maternity or parental claim), you may be eligible for The Self-Employment Program.
The program's mandate is to "provide financial assistance to eligible individuals to help them create jobs for themselves by starting a business" and it will provide either regular Employment Insurance benefits until the end of your benefit period or financial assistance for living expenses, while teaching you business skills and how to create a business plan. In my opinion, it's the best small business grant in Canada. If you're interested in starting a small business and qualify, you should definitely apply.
5. Get a "lowly" day job.
I don't mean to denigrate any particular job here; I'm using the world "lowly" to suggest that you might want or need to take a job that you haven’t considered before, either because it's not what you usually do or pays less than you are used to getting.
Many people have worked as wait people or delivery people to make money while they worked towards their goals. Or a professional might take up work in their same profession that they would not have considered before, such as a teacher doing substitute work.
Starting a Small Business Is a Good Option
Starting a small business isn't for everyone, but it can be a good option for laid off people who would like the chance to be their own bosses for a change. If you are expecting or hoping that your new small business will replace your employment income, you have to make starting a small business that will make money your first priority. Stay focused on what your target market wants rather than what you would like.