I have had the pleasure of talking with several people over the last few weeks, who want to, or have started, their own businesses. There are only 3 ways (excluding winning a lottery) for an average person who is making their living in the Employee category, to gain Financial Independence. They are through Real Estate, Market investing, and owning a Business. They all have one thing in common. They all involve overcoming an immense amount of fear.
The mechanics of opening a business are very simple. You pick which of the 3 business types you want, Sole Proprietorship, Corporation, or a partnership in either of those two types. You fill out the government paperwork so that you can open a business bank account, pay the associated fees, and bang you are in business.
The emotional end of starting a business is much more complicated. It is plagued with “WHAT IF s” What if it doesn’t work? What if I have to hire someone? What if I need more money? What if it strains my relationships? What if I don’t have time for my friends? You get the idea. The majority of these fears can be summed up in one area. Fear of the UNKNOWN. The fear of crossing a busy street is not bad. That is a KNOWN situation. But if you have never run, or been brought up in a family business, going into business, is totally unknown territory. It will change your life. As the picture says, will it be a dream or a nightmare? There are hundreds of books out there on Starting a business. The two I would recommend are “Driven” by Robert Herjavec, and “The Cold Hard Truth” by Kevin O’Leary. Driven is written with some emotion, while Cold Hard Truth is very…Cold. They are good books because they deal with the reality of starting and running a business, from the “PEOPLE” side, not the numbers side.
The fear involved with starting a business is real, and it is justified. NOBODY KNOWS WHAT WILL HAPPEN FOR SURE. So what can you do to lessen the fear, and improve your chances for success? That usually depends on how much money you have to invest. If you have or can get a few hundred thousand dollars, you can buy a FRANCHISE. For example: Subway store is $115,000 to $250,000, Tim Hortons you need $203,000 cash (not borrowed) with a total cost of $450,000 to open, Sign-A-Rama is a minimum of $44,500, with $150,000 to open, a UPS Store is between $75,000 and $125,000.
Buying a franchise has many advantages. One of the biggest is you have help and training from the Franchisers, and you are buying a proven Business System. Since the system is proven, banks are much easier to deal with. A franchise also removes many of the financial and “How do I do … ?” unknowns. Franchises also offer instant recognition, along with national as well as local advertising and merchandising. You know how much money you can expect to make each year as long as you follow the plan. The two main disadvantages are the high amount of cash required, and you will have to follow the rules. Franchises often push the “Be Your Own Boss” idea. But they frown on independent thinkers. You will definitely be following orders. Franchises are just another way to be Self Employed.
If you don’t have thousands of dollars to invest, then you have to do your homework. This involves doing Market Research (not just asking your friends and family if they think it is a good idea) and putting together a REALISTIC Business Plan. Both of these take a fair bit of time and energy. The good thing is they can be done while your still working, and usually don’t require large expenses. There are also many local business development centers where you can get help and some guidance. I recommend that if you are getting guidance, it be from someone who has actually started up, and run, a business before. I have seen less than stellar results from people working with an MBA who has never actually opened, or run, a business.
There is a lot more work involved in doing a realistic Business Plan than just downloading a template from the internet and filling in the blanks. Businesses fail, or succeed, on two key things, customer satisfaction, and the numbers. The Customer/Numbers relationship is a one way relationship. Customer satisfaction drives the numbers. The numbers DO NOT drive customer satisfaction. I can feel the ground shaking from all the Accountants shaking their heads. Hopefully I get some contrary responses to this post from an Accountant. The relationship is one way for a good reason. No matter how efficient or cost effective your product or service, if no customers buy it, your business fails!!! That said, the numbers are still very important. Especially in your business Plan.
When you are starting out it is easier to get realistic numbers for your expenses, than estimating your Sales. I recommend that you do your expenses first. Be realistic. If you have to estimate an expense, estimate on the high side!! If you don’t know something, like how much power or water you will use, go ask the Utility company. If your not sure how much a store lease is, go find a place that meets your needs and then ask the Real Estate agent what it leases for, and what else you have to pay on top of the base lease. I always do the expenses first. This way I know what profit margin (Part of your Expenses) and volume of sales I need to cover the costs. I see lots of people who feel they need to massage the expenses, or the sales, so that they show a profit. If your business plan shows a loss, it is a signal that maybe this business is not worth while, or you have misjudged something.
One of the ways to check and see if you have accounted for most things (everything is near impossible) is to run through a typical day. For example: I go to the store and open the door. I enter the store and turn off the security alarm, and turn on the lights. Have you accounted for all the expenses to have a store?? Lease/mortgage, insurances, utilities, security systems, etc. I look over my shelves of stock. Have you included the expenses for the inventory, inventory control software, computers to run the software, training, fixtures, etc. I find that this helps to clarify a lot of the expenses.
When it comes to actual operation of the business I recommend the same thing. A customer walks through the door. What is their first impression, how do we greet them/or do we greet them, what do we do next. This same visualization will help you come up with the actual mechanics of your business. I often get a friend to role play the customer so that there is a sense of unexpectedness. If you do this for as many situations as you (and a friend) can think of, it helps to clarify many of the “What If’s”.
There were two things I learned on the “Rich Dad” weekend training seminar, that have helped me with a lot of unknown situations. The first is the definition of FEAR. False Evidence Appearing Real. For some reason our minds generate totally unrealistic fears about the unknown. Like a child afraid of the alligators in the freshwater northern Ontario Lake. We also tend to believe the horror stories we hear from our friends about their friend’s business experiences. That is really False Evidence. Want information closer to the truth? Go talk to someone who is in the business. As a business owner, having the opportunity to talk to some one about my business is fun. As long as they are not a competitor.
The second thing I learned was some questions to quantify my fear. Is it really that bad?? There are 7 questions. 1) What is my investment? 2) What is my Return On Investment? 3) What is the UP side to this investment? 4) What is the DOWN side to this investment? 5) What is the BEST case scenario? 6) What is the WORST case scenario? 7) How bad REALLY is the Worst case scenario? I have found that the last question is often the most important. If things really went wrong, could I still recover??? Is it sooo bad, that it beats the benefits of the BEST case? For those of you younger people out there, I’ve added an other question. Would it bother me for the rest of my life if I didn’t try??
So is starting your own business scary? Absolutely!! Can we reduce the unknowns? Yes, most of them. Will it change your life? Absolutely! Will that change be for the Better or the Worse? That is up to you. But think of much you will learn.
Keep Learning;
Uncle E