Startups are fun. Startups are hot. There are hundreds of podcast episodes highlighting startup founders that have built huge companies. And there are dozens of speakers out there telling young people to follow their dreams and be entrepreneurs. I love hearing these things. Entrepreneurship is a huge opportunity to be your own boss and build something you love, especially for minorities and women.
However, I have seen many young founders that are going to have a really tough time starting a business. Do you really understand what you are getting into? I have done this three times, but I didn’t get into the startup life until I had accumulated some major savings in my bank account from a twenty-year investment banking career. Now you don’t have to wait that long, but you better have some type of cash cushion before you start.
Most early stage founders can’t take a salary, and I mean not a penny. If your business generates early revenues, most of the time you will need that money to fund the company and won’t be able to pay yourself. Do a quick calculation. How much cash do you have in your personal bank account? How much money do you spend monthly? How many months can you go without a salary? If you don’t have enough cushion, you might need to take a job and build your startup as a side hustle in the beginning.
Another piece of quick advice from a young founder I work with. Did you know that if your personal credit score is bad, you may not even be able to open a business bank account? I saw three banks reject a startup for checking accounts because the founder’s credit score was below 600. Many recent college grads have problems with credit cards or student loans that could put you in the same situation. Check your personal credit score. If it is below 600, you might need help from a co-founder, parent, or friend just to open a bank account for your company.
Im summary, maybe you’re not quite in the right position to start a business today. Evaluate your current financial situation before you get deep into a new venture, be honest with yourself and you’ll be better positioned for success.
That’s it for today’s Founder Coach post, I hope you learned something helpful today.