“Wealth Creation—Part 4: Be Your Own Boss”
More and more people are considering pursuit of the dream of owning their own business so they can control their own financial destiny. It also happens to be the number one path to wealth creation.
Unfortunately, the majority of new businesses fail within the first four years. Years ago I was the executive producer and host of a cable TV show where I interviewed self-made millionaire entrepreneurs who would share their secrets of success. I’ll never forget the advice one multimillionaire business owner gave me. He said the key to success for any business is three things. The first key is, “Stay close to your numbers.” Let’s see how we can apply this rule to tilt the odds of success in your favor.
I often hear that start-up entrepreneurs should expect to lose money for the first three to five years. Nonsense! Your business strategy should include a ‘plan’ to be profitable your first year. Two key points here:
- Before you start your business, you’ll need to develop a detailed month-by-month cash flow projection for the first 12 to 24 months of operation along with a less detailed projection of cash flow for an additional two to three years. This exercise will suggest how much start-up capital you’ll need. Technically, you’ll want to follow three sets of numbers on a monthly basis: Balance Sheet, Profit and Loss Statement and Cash Flow Statement. The Balance Sheet lists all of the business assets, liabilities and net worth. The Profit and Loss Statement tracks income and expenses to arrive at your profit (or loss). The Cash Flow Statement tracks the sources and uses of your cash. Managing your actual income and expenses against your budget will be one of your most important tools for success. In good times, good cash management is your key to growth. In bad times, it’s your key to survival!
- Most new businesses require start-up capital to cover rent, equipment, salaries, etc. until such time as the business revenue can cover ongoing business expenses. One of the biggest mistakes entrepreneurs make is underestimating these costs. Often the entrepreneur is seeking capital from either a bank or friends and relatives and they typically ask for what they estimate will be needed, which more often than not, turns out to be inadequate. Going back for additional funding typically proves to be a much more daunting task because the entrepreneur has now lost credibility from a business management perspective. To your initial estimate, you should add 50% to 100% because my experience is that you will have underestimated your capital needs by that much money.
This entrepreneur’s second rule for success is, “Stay close to your customers”. As a start-up entrepreneur, you may not have any customers yet but you do need a detailed written plan of who is your ‘ideal’ customer. Further, you’ll need to develop a plan for how to serve these customers better than anyone else along with a plan for reaching new customers (your marketing plan). The most successful businesses build growth based on a product or service niche. How can you create a unique customer experience?
The final key to success is, “Stay close to your employees”. In the beginning, you may serve as the president, secretary, treasurer and janitor but soon you will need to develop your team. Start by developing an organizational chart based on a successful business five to ten years into the future. What ‘positions’ would need to be filled between now and then? Look for people whose strengths counter-balance your weaknesses. For example, if you excel at sales and marketing, hire someone who is excellent at operational details and managing financial systems. One lesson I learned in building my businesses is to hire the very best people…people who are self-starters. They will be more expensive, but they will be worth it. Once you have great people in place, the best way to keep them is to set up a communications system that allows you to give and receive feedback regarding expectations, progress and ideas for improving the business environment.
Start your team by engaging ‘experts for hire’ including an accountant and business attorney and perhaps a financial planner. Another excellent source of business talent that you can access for free is through SCORE. SCORE is a nonprofit association dedicated to helping small business owners succeed. Both working and retired executives and business owners donate time and expertise as business counselors. For more information about SCORE, go to www.score.org.
The ultimate key to success will be your passion for your chosen business. When you find yourself at a low point, it will be your passion for your business and your passion to succeed that will sustain you.
I’ll be writing more about creating wealth with your own business in an upcoming book I am writing for the Get Rich on Purpose® book series. Get Rich on Purpose® is dedicated to helping individuals achieve Financial Freedom through Financial Literacy and Entrepreneurship. To find out more, visit GetRichonPurpose.com