How your private economy is affected

Per works at Nordea as a Relationship Manager mainly focusing on small entrepreneurs and one-man companies. On a monthly basis he is approached by 1 or 2 new, hopeful entrepreneurs. Many of them want to open a restaurant or sell their own expertise via their business. 

But in the course of a year he gets to consult entrepreneurs within all sorts of businesses. And no matter what sort of business he comes into contact with, the situation is much the same; a person has been running a hobby entrepreneurship while being an employee and now wants to turn the hobby into a fulltime job.  

"Most new entrepreneurs do not have all the details about their private economy figured out”

Asked on the matter of whether or not small entrepreneurs typically have everything in order when they make the transition from hobby to fulltime entrepreneurship, Per is very clear:

- “Most new entrepreneurs, who are single owner companies, do not have all the details about their private economy figured out. They might have made a business plan, and even a budget, but they often forget to include their private expenses, like rent, phone, transportation, food, electricity, etc. Some of them even forget to set aside money for taxes or VAT related to their business.”

From Per’s perspective, what most private entrepreneurs need to get down, before contacting the bank, maybe before even starting their own business is making a backward calculation.

- “What you need to do, as a small, private entrepreneur is this: Look into your current private budget, write down all your monthly expenses plus disposable, and do the calculation. When you got that number, you have a pretty good idea about the turnover your business needs to deliver on a yearly basis.”

When it comes to making a proper living of your business, Per has some good, encouraging advice: Keep track of your earnings, expenses and budget on a weekly basis and hire an accountant you can afford. If you got this in order, it’s easier to put a plan B together with a business counsellor – or your bank – in case business suddenly slows down. As Per puts it:

- “It’s better to make a realistic plan B, and save your business, than to risk it all and in worse case see your business dream die. Businesses come and go, but as an advisor I like to see people succeed.”

Paying close attention to your earnings is always important. Whether you are only you or have employees that need their salary, balancing your budget is essential. And then you have pension and insurances to pay as well. Just consider the consequences, if something went terribly wrong and your life insurance were not in place, because you didn’t consider it the day you became your own boss. 

That’s why an advisor like Per always recommend you to sit down with an accountant and your insurance company, preferably before you leave your day job. And while you are at it, make that plan B – just in case.

We asked Per, if he had 5 essentials, that you as an first time entrepreneur with a single owner company would be able to apply to your business and private economy.

Per’s 5 essentials

1. Make a thorough backwards calculation of your private economy – what can you afford and what changes are acceptable?
2. Make sure to make a realistic business and private budget – including liquidity, tax, VAT and result for your business – what is the potential flow of money and are your credit facilities in place?
3. Make a proper business plan – what is the purpose and focus of your business?
4. Get your pension and insurances in place before you quit your day job – being insured from day 1 is far more important than your pension.
5. Always have a plan B if your dreams do not match reality.