Use My Are You Cut Out to Run Your Own Business? Are You an Entrepreneur?
December 2016
Are you ready to be an entrepreneur? Many think so, but are shocked by the challenges they later face. I have been there, done that! But I have also worked with many others who did so as well – some successfully, some dreadful failures, and some in between. If you cannot honestly answer these questions in the positive, you should wait awhile:
1. Will you be doing something you love to do – is it like a hobby to you? Are you ready, willing and able to work 60 hours or more per week, and skip regular vacations/holidays? If yes, then is your family willing to let you do it? Running a business is a family affair and requires support from your spouse, in particular.
2. Do you like people? Can you tolerate any type of person and deal with them in a tactful, polite manner, even if you disagree with them? Customers come in all types of personalities, as do employees, suppliers, government officials, etc., and you need to be appropriately accommodating.
3. Will you be selling something that many people want? Is it better than what other people are already selling? Why? These are critical questions. Just because you think you are better, or even if you really are better than your competition, your customers do not know it yet – how will they find out? Do you have a marketing plan? Is it a pipe dream or does it give you step by step guidance that you can and will actually do? You are the boss – any failure will be owned by you if you are not being realistic, along with significant financial debts.
4. Do you have experience in working for a business? Textbooks may describe it, but there is nothing like a few years’ experience to see what it is really like. Trying to find customers; avoiding, or correcting errors; dealing with complaints; taking corrective action with employees; negotiating contracts such as loans, leases and sales deals; calculation employee tax withholdings; ensuring you have all the right licenses; filing government reports; bookkeeping; etc. can be challenging even for experienced business owners. Patience to work with someone else, and seeing these issues firsthand will give you a great head start in your own venture. Furthermore, working for someone else may allow you to build your customer base (and your reputation) without taking the risk yourself.
5. Have you calculated your costs to start the business – such as professional fees to set up your company; designing letterhead and a web site; initial marketing costs; renting or setting up your office premises, including purchase of furniture and equipment; setting up your production facilities; hiring staff; etc.? This all requires upfront money before you have any sales revenue.
6. Do you have enough money to finance the start of your business, or enough collateral (or a co-signer) to borrow the money? If not, how will you meet that hurdle?
7. Can you tell me (or more importantly, can you tell anyone from whom you may borrow money) how much you will sell in each year over the next three years – how many customers per month and what geographic area they will come from? Do those stats seem realistic?
8. Have you calculated your costs of running the day to day operations, including production costs / hired help / rent and operating costs / income taxes / etc.? Will the sales you determined above be high enough to cover these costs? In other words, have you prepared a business plan for the first three years? Have you developed the numbers for the plan yourself? This is important because any accountant can put numbers together that look good – but you will need to live by them. You need to understand them to ensure your budget is achievable.
9. Do you have enough money for a “fall back” position? Most entrepreneurs are optimistic, so if (usually “when”) the sales do not materialize as quickly as you expect, do you have additional money to use while waiting for sales to grow?
10. Do you have the integrity (and backbone) to run an honest business, reporting all of your income and saying “no” to those customers, employees and suppliers who will ask you to do “under the table” deals? If not, expect the worst as the consequences of breaking the law comes down on you in the future, including potential bankruptcy from penalties, fines and lost reputation, as well as a very perturbed spouse.
Again, think about these points seriously. Your long-term future is at stake. I am not telling you not be a risk taker. I encourage people to start their own business and set their own destiny – as I said above, I did so myself. Just do it with adequate preparation, and do not get caught up in the excitement and start before you are ready. Jumping off a cliff can be very exhilarating and rewarding with proper preparation – not so much otherwise. Good luck.
Blair Corkum, CPA, CA, R.F.P., CFP, CFDS, CLU, CHS holds his Chartered Professional Accountant, Chartered Accountant, Registered Financial Planner, Chartered Financial Divorce Specialist as well as several other financial planning related designations. Blair offers hourly based fee-only personal financial planning, holds no investment or insurance licenses, and receives no commissions or referral fees. This publication should not be construed as legal or investment advice. It is neither a definitive analysis of the law nor a substitute for professional advice which you should obtain before acting on information in this article. Information may change as a result of legislation or regulations issued after this article was written.©Blair Corkum