The letter has been signed. The final pay has landed, or it is about to. For the first time in years, you have a lump sum in the bank and no job to go to on Monday. Somewhere in the back of your mind, a question keeps coming up: should I use this money to finally start my own business?

It is a fair question, and it deserves a calm answer. Using your redundancy payout to start a business can be a real head start. It can also disappear quickly if it is spent before the idea has been tested. This checklist will help you work out which way you are leaning, and why, before a single dollar leaves your account.

First, separate the payout into three buckets

Before you think about the business at all, look at the payout as three different piles of money. They do different jobs, and mixing them up is where most trouble starts.

  • Bucket 1: Living money. What you and your household need to pay the mortgage or rent, food, bills, insurance and transport while you get established. This bucket is not business money.
  • Bucket 2: Safety money. An emergency buffer for things that go wrong: a car repair, a health issue, a slow few months.
  • Bucket 3: Business money. The amount you could lose completely and still be okay. This is the only money that should go into setting up the business.

If bucket 3 is empty once buckets 1 and 2 are covered, that does not mean “no”. It means you start smaller, start part time, or find work while you test the idea. The free Moneysmart budget planner is a simple way to see your real household costs on one page.

Know exactly what you received, and what is left after tax

A redundancy payout is often made up of several parts: redundancy pay, payment in lieu of notice, unused annual leave and sometimes long service leave. They are not all taxed the same way. The ATO explains that a genuine redundancy payment is tax-free up to a limit based on your years of service, with the rest taxed concessionally as an employment termination payment.

For 2026-27, the ATO lists the tax-free limit as a base amount of $13,598 plus $6,801 for each complete year of service. These figures are indexed every 1 July, so check the ATO’s current thresholds for the year you were paid.

Your planning number is the amount that actually arrived in your account, not the figure in your redundancy letter. If you are not sure your entitlements were right, the Fair Work Ombudsman’s redundancy pages explain what you may be owed.

The honest checklist: 12 questions to answer first

Work through these with a pen and paper. Be honest. Nobody else needs to see your answers.

  1. Do I have at least six months of living costs covered without touching business money?
  2. Does my partner or family know what I am considering, and are they on board?
  3. Can I describe the business in one sentence: who I help, what I do, and why they would pay me?
  4. Have I spoken to at least five potential customers who are not friends or family?
  5. Do I know who my local competitors are and roughly what they charge?
  6. Do I know whether there is enough demand in my area, not just in general?
  7. Do I need a licence, registration or insurance before I can start? Some trades and services do.
  8. What is the least I could spend to test the idea? Could I start from home, with second-hand gear, or part time?
  9. How long until the business could pay me a modest wage? Be realistic. Many service businesses take months to build a steady base of clients.
  10. What would make me stop? Set a dollar amount or a date. Write it down now, while you are calm.
  11. Am I running towards something, or away from something? Both are human. Only one is a business plan.
  12. Have I had independent advice on tax, super and any government payments that might be affected?

If you can tick eight or more, you are in a strong position to keep exploring. If you ticked fewer than five, it is not a “no”. It is a sign to slow down and do more groundwork first.

Common traps when spending a payout on a business

None of these are about being careless. They happen to sensible people because a lump sum feels bigger than it is.

  • Buying before testing. A new ute, a fit-out or a big equipment order before you have a single paying customer.
  • Paying for a franchise or business without independent checks. Get advice from an accountant and a lawyer before you sign.
  • Forgetting tax on your new income. As a sole trader, nobody withholds tax for you. The ATO suggests setting money aside for your tax bill and considering voluntary PAYG instalments when you are new to business.
  • Forgetting your own super. Moneysmart notes that if you are self-employed as a sole trader, you do not have to pay yourself super. That is easy to forget, and costly over time.
  • Not checking government payments. If you might need Centrelink support, ask how a payout affects you first. Services Australia has information on the income maintenance period that can apply after leave or redundancy payments.

When using your payout makes good sense

There are plenty of situations where putting part of your payout into a business is a sound choice. It tends to work best when:

  • You are building on skills you already have, and people have paid for them before.
  • The business is a service with low set-up costs, such as consulting, bookkeeping, handyman work or cleaning.
  • You have tested the idea with real customers and some have said yes.
  • Your household costs are covered for a sensible period, separate from the business money.
  • You have a clear stop point and you have shared it with someone you trust.

If you are thinking about a service business, GrowOnline’s guides to starting a business or management consulting practice or handyman services business walk through the set-up steps in more detail.

Free help before you decide

You do not have to work this out alone, and some of the best help costs nothing.

This series, The Redundancy Pivot, takes you through each stage, from the first few weeks to your first customers.

This article is general information only, not financial, tax or legal advice. Check your own situation with the ATO or a licensed adviser.

Next step

The single most useful thing you can do now is test the idea against your local market before you spend anything. Who already offers this near you? What do they charge? Are their customers happy, or is there a gap you could fill?

Before you spend your payout, find out whether your idea will work where you live. Get free, localised research into your business idea from GrowOnline: your local competitors, what they charge, what their customers say and who lives in your area.