Are You Ready To Start Your Own Business?
By Keith Rawlinson
Volunteer Budget Counselor
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Are you thinking about starting your own business?
it a small, home-based business or a larger company complete with
employees, many people see starting their own business as a way to
wealth and financial independence. If you do it right, and things
go well, it is possible to support yourself or even grow wealthy by
having your own business; however, most people don't do it right and
end up in serious financial trouble. This article presents a list
of my own personal 'rules' for starting your own business. If you
follow these rules to the letter, your new business will have a chance.
If you break any of these rules, however, it is very likely that
your business will fail and possibly destroy you financially. I'm
not trying to scare you or dissuade you from starting their own
business, I'm just trying to help you avoid the most common things that
lead to business failure and, subsequently, financial disaster. I
The six commandments of starting your own business.
#1 Determine the demand for your product or service ahead of time.
be very honest about it. The problem that many people starting
their own business have is that they get stars in their eyes and think
they can't fail. They ask what friends and family think of their
new idea, and even if the consensus is that starting the business is
not a good idea, they go ahead and try it anyway because they are just
so sure that it is a great idea no matter what anyone else thinks.
Also, be aware that friends and family, in order to avoid hurting your feelings or discouraging
you, might not be completely
honest with you. You are better off asking complete strangers what they think
of your new idea. If the feedback you get is discouraging, don't
just ignore it figuring that you know more about it than they do.
Don't forget, complete strangers will most likely make up the
bulk of your customers. If complete strangers don't like your
business idea now, what makes you think they will after you take the
risk of actually starting that business.
And please don't ever
make the common mistake of thinking that your business will succeed
because there is no other business like it anywhere in the area.
Many people think that this means there will be little
competition, and that could be. It is possible that no one has
ever thought of starting your business idea in that particular locale--or--there
may be no competition in the area because such a business cannot
succeed in that area! I know of a woman who started an ice cream
parlor in the middle of nowhere thinking it would be successful since
there were no such businesses for miles around. Before too long,
the business went under for lack of customers. It turned out that
on the way out to her ice cream parlor in the middle of nowhere,
potential customers had to pass three or four similar businesses in the
more populated areas. There was just no compelling reason to
drive the extra distance when there was ice cream to be had so much
closer to home. Always remember that there might be no
competition because there are no customers for whom to compete.
#2 Carefully consider the kind of business you are going to start.
You must accept and remember that most new business endeavors fail within five years. I didn't say that some fail--I said that most
new business endeavors fail! Actually, the average time it
takes for a new, small business to fail is two to five years. As I
hope you are already aware, some new business endeavors are more prone
to failure than others. Probably the most failure-prone business
idea in America today is opening a restaurant; yet, this is one of the
most common business ideas people come up with. The restaurant
business is very, very competitive. Just look at any major
metropolitan area--you'll see restaurant after restaurant right next to
each other! Restaurants are equipment intensive, labor intensive,
regulation intensive and inventory intensive (you have to keep food
on-hand and fresh at all times). If your business idea is to have
your own restaurant, it is very critical for you, of all people, to
follow all of the guidelines in this article very, very carefully. If you don't, and things go bad, you only have yourself to blame.
the next most failure-prone business idea of which I am aware is the
marketing of an invention. Understand that most of
the successful inventors in America didn't just invent one thing
or have only one 'great' idea. Most successful inventors invent
hundreds, if not thousands, of inventions and are fortunate to have one
or two truly succeed. I have seen too many people invent one
thing that they are absolutely convinced is the next billion-dollar
invention, and devote their lives and their money to trying to make
that one invention successful. Too often, such people end up in
financial ruin when their money runs out and they are stuck with an
invention that few, if any, people wanted in the first place. If
after a reasonable amount of time and money your invention doesn't seem
to be getting anywhere, please take a good, honest look at the
possibility that it is not a good enough invention to succeed. A
truly innovative invention that is likely to make millions of dollars,
generally sells itself. People see it and they want it. If
you have to excessively talk people into your invention, or force it on
them, it isn't likely a good enough invention to be successful.
Not to mention the fact that in order to protect your idea from
being stolen by someone else, you have to get a patent on it before you
even begin showing it to anyone. Patents are not cheap.
We're talking about tens of thousands of dollars just to patent
one invention. You basically end up with a lot of money tied up
in your invention before you can even try
to get it into production. And please don't try to market your
invention through any kind of company that says 'for a fee, they will
market it for you.' More often than not, such companies are a
rip-off that take your money and then do little or nothing to get your
invention on the market.
Once you have decided to start your own business, whatever it may be, try to choose a business that involves
something about which you are very knowledgeable. If you know
little or nothing about surfing, don't try to open a surf shop.
If you know little or nothing about party planning and food
services, don't try to start a catering business. If you want to
start a business involving something you know little about, then first
educate yourself about every aspect of that business before you even
think about trying to start your own. Before starting any new
business, I strongly advise that you work in that field for at least
two years before going out on your own. While working there,
learn everything you possibly can about running the business.
That way, you'll have a lot of the knowledge you'll need in your
own business, or you may discover that you really don't want to be in
that particular business after all.
#3 Finance your business the right way.
of all, don't go into debt to start a business. I can't emphasize
this enough. When you start a new business, you are taking a
risk with the time and money you are putting into it. Using
borrowed money amplifies that risk considerably. The biggest
financial mistake I see people make when starting a new business is raising the
money through a home equity loan, refinancing their house, or using
credit cards. Before you start a new business, you should either
have the cash on hand, or have investors who lose their money if the
business fails. Make sure all agreements are in writing and that
it is clearly stated that you are not personally liable for any
money lost by the business endeavor. I already told you that the
average new business fails after about two years. If you have
borrowed against your house, or put thousands of dollars on credit
cards, you still have to pay all of that money back if the business
fails. You could, and statistically will, end up making payments
for years to come, or possibly even losing your house in foreclosure if
you borrow money to start a business. Remember, most new business fail.
Here are the golden rules of financing a new business:
- Never ever go into debt to start a new business. With debt, if the business goes under, most likely you do too!
- Expect to lose all
of the money you put into your new business. It is likely to
happen, so if you couldn't take the loss, then don't start the business!
enough cash on hand to completely fund the business for at least two
years. Insufficient cash is what destroys most new
- Don't expect a paycheck for at least two years.
If you think a brand new business is going to support you right
away, you're probably fooling yourself.
- Never be personally
liable for investors' money. If the business disappears, so must
their investment. Put it in writing from the start!
#4 Start small.
all of the guidelines I've given you so far, this one probably has the
potential to save you the most grief. Why? Because even if
you are foolish enough to ignore the other guidelines I've given you,
starting small will likely limit the financial damage.
The first rule about starting small is to buy only what you absolutely need and only
when you truly need it. By 'need,' I mean things that you cannot
possibly run your business without. I'm not talking about things
that make it easier or more convenient; I'm talking about things that
you absolutely must have in order to stay in business. Here are some examples of how to start small:
your own home if possible. Remember that Apple Computers was
started in someone's garage at home; so, don't go out and rent a
huge space if you can start with renting a small space. And don't
rent any space at all if you can get your business started at home.
buy a large amount of inventory at first. Your supplier might try
to talk you into it, but don't do it. Even if buying additional
inventory results in a reduced cost per unit, don't do it. You
are much better off paying more for your inventory at first, and making
a little less profit, than ending up with a basement full of
thousands of dollars worth of unsold goods when the business
fails. Don't forget, you have to plan for what you will do if the
business fails since it most likely will. I hope you beat the
odds and succeed, but it is more likely that you will not, so try to be
ready for that possibility ahead of time. Besides, at first you
are still trying to learn what your customers do and don't want.
You do not want to spend all of your money buying inventory that
doesn't sell well, and then end up needing more money to buy what will
At first, other than inventory, try not to buy anything
new. It is incredibly wise, and gives you a much better chance of
success, if you start out with used stuff. This includes such
things as phones, office furniture, computers, copy machines, vehicles,
equipment, etc. If your business proves to be wildly successful, you can
always upgrade later; but for now, go with used rather than new.
#5 Get legal advice and adequate insurance before starting a new business.
am a financial counselor, not an attorney. There are many legal
issues that must be addressed before starting a business, and in each
locale, the laws are a little different. In this article, I'm
only able to give you the very basic guidelines from a purely financial
perspective. You must consult a competent, knowledgeable attorney
before starting a new business. The trouble it can save you later
is usually well worth the cost of the attorney.
Also, make sure
you have adequate insurances such as disaster and liability insurance
in place before starting your business. It may not be cheap, but
if you can't afford the insurance, then you can't afford to start the
business. If you don't have enough insurance, a fire, flood,
theft or lawsuit can take down not only your business, but you
#6 Put everything in writing.
is an old Chinese saying: "The weakest ink is better than the
strongest memory." In other words, if any kind of agreement is in
dispute, it is much better to be able to refer to what was written
down, than to what each person thinks they remember. Putting
everything in writing saves arguments, lawsuits, friendships,
relationships and money--put everything in writing--no exceptions!
This includes agreements made with customers, suppliers,
landlords, partners, investors, etc. Here again, it is a good
idea to get your attorney involved in making sure everything that can
go right, as well as wrong, is covered in the written agreements.
To give yourself the best chance if having a new business idea succeed, you really need to follow all
of the guidelines I have provided in this article. You cannot
just pick and choose the ideas you like--you must follow all of them.
Compromising on even one of the guidelines I have
given might be all it takes to destroy what otherwise would have
been a successful business. I didn't write this article to
discourage you from trying to start a new business; I wrote this
article to make sure you are realistic about the endeavor and do things
right so that you have the greatest chance of success. Remember
that Eclecticsite.com's Financial Page is here to help you get ahead
financially and hopefully become wealthy. If you think that
starting your own business might be right for you--make sure you do it
Finally, once your business is up and running, you'll
want to do everything you can to keep it running successfully. A
good place to start is reading my article entitled "Some Secrets To Running A Successful Business."
Please know that all of the thoughts, information,
and techniques given on this site are nothing more than the author's
the matter being addressed. Do further research before making
This article copyright © 2007 by Keith C. Rawlinson
(Eclecticsite.com). All rights reserved.
This article may be copied for non-profit use including newsletters,
as long as you
first get written permission from the author and full credit is given
which includes the author's name
and the name of this website.