person holding paper bills while using a calculator

Is It Worth It to Start a Business? (How to Calculate)

In this post, we are going through ways you can calculate whether it is worth starting the business you have been planning or skip it. There are different ways to calculate, you may not be able to do all of these depending on your life situation, but you can apply these to your unique situation. Let’s get started.

Do you get more value for your time from your own business?

Does your hourly wage increase with your own business, compared to your current job, assuming you have one? If so, then it might be worth the risk.

When calculating, how much your business might generate you in hourly income, it is important to look for the future. Often, the first few months or even years do not yet bring in substantial income.

If your business is supposed to bring in passive income, meaning you only have to start it, and then it will continue to run with smaller effort or even itself, you could calculate a few years ahead. Or how much you see fit to calculate into the future. If the future seems bright for your industry, you can calculate further.

Let’s say it takes you 500 hours to get the business running. You are currently working for 20 dollars an hour, that would mean 10 000 dollars income, if you put the effort towards your current job.

If your business should generate 300 dollars monthly, without any or very little effort for the next 3 years to come, that would mean 10 800 dollars in income in the next 3 years. In this scenario, your hourly wage would stay around the same.

You can apply this calculation when you determine if you should or should not start the business. Of course, there is always risk involved in every business, but if you could get 500 dollars a month with 100 hours of initial work, that would mean 18 000 dollars with 100 hours of work in the next three years to come.

This would make your hourly wage to be around 180 dollars. Even if the chances of your success were not high, that might be worth a shot. Be realistic with your calculations so you don’t miss a good opportunity, or waste time on something that had very little chances to succeed with very little reward.

Compare to industry averages

In some industries, there might be good data available for everybody about how much the industry average is. If an average business owner in restaurant business is making around 10 000 dollars a month in profit, check if your calculations would reach that and with how much effort.

If you are currently making 10 000 dollars a month from another job, but starting your business would offer the same salary, at best, but doubling your working hours, is it worth it? It might be if you hate your current job, and it is your dream to start a restaurant. In situations like this, the numbers don’t really matter as far as you can support yourself with the income you get.

Does starting a business give you more freedom?

Sometimes the motivation to start a business is the freedom it brings you. However, starting a business with a physical location might take away your freedom to travel or move. It can also restrict your free time, if you have to answer business calls around the clock.

Sometimes starting a business gives you freedom. Freedom to travel, determine when to work and to work for yourself. It all depends on the business you are starting.

One thing that every business has in common is that it gives you the freedom to be your own boss. I’m sure there are exceptions to this rule as well, but usually, you are your own boss. With the freedom, there comes the responsibility as well. Nobody will call you to work if you are late, unless your employees miss you.

Weight the pros and cons about how much freedom the business really can provide you. Sometimes starting a business limits your freedom in some aspect, but gives it more in another way.

Starting a business can bring in a lot of stress

If your current job is stressful and that is the reason you want to start a business, running a business can be even more stressful. In your current job, you still get paid regularly, but in your own business, there are no guarantees.

Running a successful business will have its benefits. It can give you a good financial situation, but there are no guarantees for that. Financial risk is always present, and with that, comes stress too. If starting a business, make sure you manage your risks well. I have a post about risk management in business. You can read it here.

Final words

There might be different reasons you are thinking about starting a business. Financial aspect, freedom, or just that it is the only thing you can do to support yourself. There are a lot of ways you can determine whether starting a business is worth it.

One is a classical pros-and-cons list done on a piece of paper. Be realistic when doing these lists and calculations.

If you still want to start your own business, I have a lot of different posts about the topic. I listed a few of them below that might be interesting to you.

Outside the box business models to consider

How to prepare yourself to start a business

What is an ideal business like

How to start a business step by step

Other business-related posts can be found here.

Hopefully this was helpful to you, have a nice day.

This is not financial advice. Always do your research before risking your hard-earned money.