Can I afford to be in business?
Starting a business always carries some risk. Your income may drop at times, and if things go wrong you could lose your investment, or end up with a debt to pay.
So you need to work out what return you need to get from the business to make the risk worthwhile. In simple terms this means taking into account what you earn now, what you’ll be investing plus allowing for the possibility of a loss of income or investment.
|
Work it out… |
Amount |
Example |
|---|---|---|
|
Your current annual income before tax |
$ |
$30,000 salary |
|
Return you could get on the money you invest |
$ |
$1,000 Based on $20,000 invested at 5% a year |
|
Allowance for extra hours you’ll work |
$ |
$7,500 Based on working 25% extra hours |
|
Allowance for risk of losing salary for 1 year* |
$ |
$3,000 Based on 10% of current salary |
|
Allow for risk of losing initial investment |
$ |
$2,000 Based on 10% of money invested |
|
TOTAL This is what you need to earn to cover the extra risk |
$ |
$43,500 a year Or $36,000 if no allowance made for extra time worked |
* These allowances are based on how long it is likely to take to recoup your investment. So if you think it will take 10 years to get your money back, allow 10% of your salary and initial investment each year. If you think it will take five years, allow 20% of your salary and initial investment each year.
