By Michael Gunther
Businesses are hard to start. You may be tempted to just run with your big idea and hope for success. It’s essential to take a step back and ensure that you have a proper foundation in place before starting your business. This means you must have a solid understanding of what it takes to build a business that is profitable, sustainable and fulfills your personal goals.
For every business shutting its doors today, I see two entrepreneurs ready to start something new. From my experience, most people start businesses because they believe they can deliver a product or service better, cheaper or faster than others. These entrepreneurs believe they have a unique idea or product that is sure to transform an industry, or they believe they will earn more and work less than they do now. I am truly amazed with how many people feel ready to start a business without conducting any research into how to actually build a business that supports their financial needs and meets their personal goals.
If you’re thinking of starting a business, here are a few ways to build an understanding of what it will take and to determine if it’s the right move for you.
1. Understand your financials.
Business is about generating enough revenue after expenses to afford the lifestyle you want. Yet, most people who start businesses do not know if they can make enough to support themselves, much less run a business. You should evaluate all potential expenses, including operating the business, paying yourself, saving for retirement, and buying health insurance. This will help you determine if the money and time you need to invest into this business will provide a Return on Investment (ROI) that is preferable to working for someone else.
2. Be realistic.
Building your business will take longer than you think and will be harder than you imagine. Many potential business owners are so caught up in their enthusiasm that they are unrealistic about their financial projections and capital requirements. Be conservative with your projections and have a CPA or banker review them. If you do not have a CPA or banker, make finding them your first order of business. These financial experts will provide valuable financial advice and assessments. Begin the process with your eyes and mind wide open, rather than with rose-colored glasses.
3. Talk to other business owners.
I encourage you to hold informational interviews with five current business owners and five previous business owners who ultimately closed their doors. Ask questions to help you understand their experiences. What aspects of running a business did they not anticipate? Are their earnings what they expected them to be? What are some of their biggest challenges? Their biggest mistakes? Use their feedback to discover if you are truly ready to take the leap and start your business.
Don’t start a business that becomes a statistic – one that closes its doors because you don’t understand what it takes be profitable, sustainable and fulfilling. With proper planning, you can obtain a realistic understanding of all that is required of a business owner and enjoy the subsequent excitement and rewards.