Can I afford to quit my job and open up my own auto shop? (Part 1: Personal Expenses) - ProRevTech


Can I afford to quit my job and open up my own auto shop? (Part 1: Personal Expenses)

Can’t you just taste it?

It’s 7:00 in the morning, and you’re standing in the customer lounge, brewing the first pot of coffee for the day. Nothing is unusual about that, you’ve been doing this same thing for years. While it is brewing, you turn and head into the shop. You unlock your toolbox and get things in order for the start of the day. Nothing unusual about that either since you do this almost every morning. As you glance down at your ratchets, you get hit with a bit of nostalgia.

You smile as you think to yourself, some of those same wrenches you have been turning since you were fourteen years old. You glance out the bay doors at the full parking lot. “It’s going to be a busy one this morning,” you think to yourself. But you don’t see cars out there. You see money, and it just keeps driving in every day.

The coffee’s ready now, so you head back to the lounge to pour yourself a cup. As you take your first sip, you look around the lounge and up at the logo on the wall. Something is different about today. Because today, that’s your name up there on the wall, this is your shop, and business is good. Can’t you just taste it?

Ready to quit now and get started? Not so fast, my friend. You need a plan.

If you’ve ever dreamed of owning your shop, you have probably envisioned a scene similar to this more than once. But starting your own shop is not as simple as just yelling “I quit” and rolling your box from your current shop, onto a rollback, and into your newly rented shop. It takes preparation and education to go from worker to owner, and it doesn’t happen overnight. But don’t get discouraged, it can be done, and you can do this.

Most people who dream of owning their own shop start the process by driving around looking for a space to rent. The next thing they do is go and get a logo designed and start picking out business cards. Something about having a logo and business card makes it feel legitimate.

But a business card, a sign on the wall, and an empty shop is not a business. Instead, it is a timeline for bankruptcy. You have your bills that you must pay every month, and the company will create a whole lot more bills that must be covered. You need cash flow, and cash flow management is a large part of owning your own business.

Figuring all this out can be overwhelming, but with the right planning tools, you can start to budget your expenses, and make clear what you need and where and when it will come in. This formula is best broken up into two steps. This post will cover step one – understanding your personal expenses.

Now you may be thinking that you already know what you need to make, and that may be the case. Some people are better at budgeting than others. But there are a lot of people out there living paycheck to paycheck because they are not good financial planners and have never written out a budget. If you decide what you can afford based on what is left in your bank account, the budgeting process will be eye-opening. Download the spreadsheet now and walk through the steps below to begin planning your budget.

Download the Personal Expense Spreadsheet here.

Step One: Shelter.

Unless you live with a parent or other family member, the first bill most people need to cover is the roof over your head. This expense could be a mortgage or a rent check, and it is usually the first bill to get paid. Enter this amount in cell B4.

 

Step Two: Food

Everybody has to eat, and this is an area where people tend to overspend. The best way to figure out the right amount to budget is to read your last three credit card statements, as well as your previous three bank statements. Highlight everything that is a food expense that is not a night out expense (those go in another column) and total it up. Divide by three, and you have an average monthly amount. You may have also uncovered some areas where you can save some money in the future.

 

Step Three: Transportation

Most people have a car payment, and you are going to need to get to your shop every day. Put in your car payment in cell B5. Note that this is for non-business vehicles. If you decide to buy a vehicle and use it for the shop, that will go in the business expenses in a separate blog.

 

Step Four: Fuel

You’ll need gas money every MONTH unless you drive a Tesla. Now enter that into cell B7. Use the same quarterly average method from the Food section to guestimate your average gas and/or tolls bill.

 

Step Five: Insurance

We have broken car insurance and health insurance into two categories because everybody’s situation is different. Perhaps you can stay on your wife’s health insurance. But you are going to need car insurance in most states. Enter that amount into cell B4.

 

Step Six: Utilities

Power and gas bills can fluctuate based on the season. But luckily, your utility company provides you with an average monthly consumption on your bill based on all your prior months averaged out. It is usually somewhere on your utility bill, or you can call your supplier for a monthly average. The same goes for the utilities at any shop you are considering renting, but we are getting ahead of ourselves here. Enter this amount in cell B8.

 

Step Seven: Home Cable And Internet

We keep this separate from utilities because, unlike power and heat, you could live without cable. This line item is also an opportunity to force you to review your bill and decide if you still really need cable.

 

Step Eight: Debt Service

Most of us have a  credit card or two, and with it comes credit card payments. Good credit will be key to getting your shop off the ground as you will want to establish credit lines with your vendors, and you may even want a line of credit at your bank or an SBA loan. We include credit card payments in B6.

 

Step Nine: Personal Fitness/Clothing/Entertaining/vacations

The remaining categories are lifestyle suggestions, and you may have a dollar figure in each one, only some or none at all. Utilize the remaining cells to calculate any recurring costs or savings accounts for these categories.

 

Step Ten: Payroll Taxes

Here is the budgeting mistake a lot of people make when trying to determine the amount they need to make to start a business, and that is taxes. After you have added up all the costs of living, this gives you the amount of money you need to have in your paycheck every month. However, this is the take-home number, and if you are trying to figure out the business expenses, you will need to factor in taxes. A CPA can help you get the exact amount as everybody’s situation will be different, but for the sake of this spreadsheet, we assume 27% of your gross pay will be eaten up in taxes each month. Our spreadsheet adds 27% to your take-home pay to give you the amount that the business will need to cover to deliver you the salary you want at startup.

  

Hopefully, now you have a good sense of what it costs for you to run your life, and we can move on to step two, which is estimating how much the business will require you to run each month. With your new spreadsheet, be sure to add any rows for any additional recurring monthly expenses such as child support, unreimbursed medications, and other recurring costs, student loans, etc. We look forward to working with you in Step 2: Shop Expenses.

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