Who doesn’t like the idea of owning their own business – you can be your own boss, set your own hours and there is no cap on your potential earnings! However, without the right advice and support, you may not be maximising the business’s potential.This is part one of a four part series that will guide you through some of the essentials of being a new business owner:
- Starting or purchasing a business
- Writing a business plan
Part 1: Starting or Purchasing a Business
A family member of mine recently announced she was leaving her steady employment to purchase a small vineyard. This highlighted to me the state of mind of many salary earners who assume that if they are a business owner they will be better off. The reality is that many small business owners work longer hours, have more stress and earn less than their salary earning counterparts. That is not to say that there aren’t success stories, there are many of them and the rewards can be worth the risk.
If you do want to be your own boss, the first question then is what sort of business do you want to own? This in my opinion is the most important question, as wanting a business is not how the most successful businesses are formed. If we look at some of the recent business success stories such as Apple and Google, each of the founding owners had a vision for the future and a passion for a product or service. The businesses then naturally followed as a result.
My advice for choosing a business is simple – prior knowledge and experience is the key. Do not use your business as a learning tool, it is an expensive exercise and will most likely end in failure. Instead, make your mistakes in someone else’s business. For example, if you wanted to own a restaurant, get a job as a waiter and learn what being a good waiter means. When you have mastered that, become a chef’s assistant and observe how to run an efficient kitchen. Learn how every function of that restaurant works and then, only then, consider opening or purchasing your own.
Being the owner and operator of your business gives you ultimate responsibility for the success or failure of that business. Will you rely on the chef to tell you what price to set the meals at? Will you rely on the waiter to select the wine list? Knowing your business before you own it will save you a lot of headaches.
Ok, so you know your potential business inside and out, but do you purchase an existing business or start one from scratch? There are a number of considerations here and it is not a small decision. If you purchase an existing business you will know what you are getting into, you will know the profit it currently makes and it will come with an established customer base. Sounds easy, right? The negative is that you will either be paying a premium for the business if it is successful (what we call goodwill) or you will be purchasing a business that isn’t successful and will be taking the chance that you can turn its fortunes around.
If you do choose to purchase an existing business, a price will have to be negotiated. This is where large mistakes are often made, as people are blinded with optimism and usually overpay. It can save you a lot of money to get a business valued before purchasing, at the very least a formal due diligence should be conducted. This will remove the chance of coming across any nasty surprises once you take ownership.
Starting a business from scratch usually requires a lot more preparation, for instance hiring staff, purchasing equipment, leasing a premises and completing the various business registrations. Apart from the technical issues, you will also need to have a good idea of the market share you expect to gain immediately and how much cash flow you can afford to burn through.
Once you decide upon a course of action, the next step is to write a business plan. Coincidentally that is the next part in this four part series!