Do you run a pocket money business when you need to run a bread and butter one?

How much do you want to and need to earn in your new business?

 5 tips on how to approach managing your money when you are a start-up business

Bread and butter branded image

When starting your own enterprise or thinking about setting up your own business, it’s a good idea to be clear from the outset about what is the purpose of doing so?  I don’t mean the nature of your business i.e. what is the problem that you help your potential target audience or customers to solve; at this stage I’m talking about why do you want to get into business in the first place?

Are you doing it for ‘pocket money’ or perhaps to enhance any current income stream, like if you are already employed and working for someone else? Is it to enhance your quality of life – so you can go on maybe a few more holidays per year, get that slightly better spec car or that new sofa etc?  Or do you have a desire to work for yourself only – so that your business will be your entire income i.e. that it’s your ‘bread and butter money’ that has to pay for the roof over your head, put food on your table, cover the car insurance as well as weekends away and your holidays.

All this is important as it then helps you to consider how you might go about this – how much money do you need per month to fund all your basic expenses.  This is often called your ‘survival budget’ – what does it cost to run you?!  Then you can start thinking about what how you need to fund your lavish holiday plans?!

Most people set up their own business because they are passionate about what they will be doing – they enjoy the skill or service they will be delivering.  But how do you know if it is financially viable to achieve your money goals?  If you need it to be a bread and butter business, but it’s more likely to actually provide you pocket money, you may need to rethink.

Here are top 5 tips to help you get into the right mind-set to consider this further.

  1. What’s is your survival budget?

This includes all the costs you need to live on in a typical week or month and should include all the obvious expenditure such as your rent or mortgage, utility bills, council tax as well as all the other items you may not necessarily think of such as clothing, haircuts, getting your nails done, birthday presents and socialising.  When doing this exercise for the first time, it can be so tempting not to include those couple of nights out in the pub each month, that weekly takeaway you like to have on a Friday night as well as forgetting your regular Netflix or spotify subscriptions for example!  Ok, so we are not necessarily saying that dinner at the Ritz is needed, but it just isn’t realistic not to include anything on socialising in your monthly budget.  What do they say… “all work and no play…?”

  1. Savings per week52 week saving challenge

I’ve always found it a challenge to save significant amounts of money on a regular basis.  I’m sure it’s not just me that finds themselves living to your means.  For example, when employed and occasionally getting a pay rise, whether it was £50 per month or more, I would always start with good intentions to squirrel it away and save it but of course that rarely happened and certainly not on a regular basis!  One thing that I have stuck to so far this year, is the idea of saving the number of pounds per week relating to the number of that week in the year.  For example, in the first week in the year, I put £1 aside, £2 in the second week, £3 in the third week and so on.  Of course, as the year goes on and when approaching December it may be a bit more challenging e.g. £48 one week, then £49 the next etc.  A friend of mine shared an image on pinterest that shared this idea.  My current plan is to use this savings for a trip to New York in a couple of years (for my 40th birthday year) and therefore to strike off one of the things on my bucket list or as I like to call it my itch list!


  1. Cash-flow

The first important thing is to know how much you need to survive on for a typical week and whether your business approach and model will deliver it.  Then secondly, you need to consider when and how your money will come in and hit your account?

Cash-flow is just that – the total amount of money moving in and out of your business.  It is typical that a business who is charging their customer by invoice will ask for payment within 30-day terms.  So, you may have to wait about a month after you have delivered your service to get your money in.  When you are a start-up, you are often working a month before you get paid.  So how can you manage that in your cash-flow?

Depending on the service you provide will of course depend on when you get paid. If you are a counsellor or a hair dresser, or maybe a nail technician for example, you can expect your customers to pay at the point of delivery i.e. after the counselling session, or once your hair has been cut or once your nails have been done.  Whereas if you are a caterer supplying a buffet to a business or you are offering book-keeping services to a client, you would probably expect to invoice them on a monthly basis.  Cash-flow is so important to keep an eye on, plan and regularly review.  There are some recent examples of huge businesses who had lots of orders but because they took their eye off the ball when it came to cash-flow, they ended up going bust.

  1. Keep approx. 20% of your income to one side (e.g. for tax etc)

This was a good piece of advice given to me when I first started my own business and something I try to do.  Get into the habit of putting about 20% of your business income into another account so you build up a pot of money.  It really helps when approaching January each year when you have to do your tax return for the previous tax year, so you have a chunk of money to hand ready for this purpose.  This is always very helpful especially so soon after all the financial demands at Christmas – gifts, parties and visits to friends or family around the country etc.

  1. Work out charging

Once you know the reason you are in business i.e. is it to earn some extra money or is to earn your sole income, you can then start looking at what you need to earn and how you can do that.

Lets use an example of a counsellor or therapist and lets call her Jane.

Example 1

  • Maximum – 4 clients a day @ £50 per session = £200
  • Jane only wants to work 4 days a week @ £200 per day = £800 per week (equivalent to 16 clients per week)
  • £800 per week x4 = £3200 per month gross (equivalent to 64 clients per month)
  • Survival budget is £1800 per month
  • 20% of £3200 is £640 which is the amount Jane is going to put in her savings each month ready for when she does her tax return.
  • £3200 – £1800 (survival budget) -£640 (20% on earnings) = £760 ‘surplus’

If Jane wants a bread and butter business, this model works well.  She’s got enough to cover her monthly costs and also a good surplus.

Example 2

As a new start up, the above result may not be realistic for Jane to achieve straight away – is she really going to get you may not achieve 4 clients per day consistently to begin with.

  •  8 clients per week = £50 x 8 = £400 per week
  • 32 clients per month = £50 x 32 = £1600 per month
  • £1600 – £1800 (survival budget) – £320 (20% on earnings) = -£520

So she is not ‘earning’ enough by £520.  So how could she cover this? Could it be from her savings or perhaps from her redundancy payout? Could she reduce her survival budget?  Are all her costs really essential? (Does she need movies on her Sky TV package?)

Could she get a part time job? Does she need to increase your prices? Could she run a ‘one to many’ session eg group session? Could she rent her spare room out and get a lodger for example?

Let us know if you use any of these tips or have any more to share.

9 thoughts on “Do you want a pocket money or a bread and butter business?

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  • March 23, 2020 at 11:27 am

    Hey Mark – Great blog and thank you for this valuable insight.

    I have recently started a business which coaches confidence in a range of disciplines for charities and small businesses. My methodology attempts to link classroom learning to practical challenges using the outdoors.

    Being realistic it takes time to build up a brand and client list to one of the best decisions I made was to start working part time. I found that this not only reduced my stress levels because I was guaranteed an income but it also gives me structure to the day which improves my productivity.

    Most starting a business would like it to be their full gig I think but the key understanding needs to be that it is a journey towards that and not burning you or your finances out before you have given it a honest go!

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