Starting A Business? Consider This First

By Stephen D. Simpson, CFA | August 20, 2010 AAA
Starting A Business? Consider This First

For many people, owning their own business is an opportunity not only to make a living, but to enjoy making a living. By working for yourself, you'll have the opportunity to succeed as far as your work ethic and savvy will allow, and the chance to largely shape your own working conditions.

In Pictures: 8 Tips For Starting Your Own Business

All this and more represents a powerful pull to many people. But before making that leap, think about a few of these often overlooked challenges in running your own business.

Do You Have A Business?
It seems like an obvious question, but a surprising number of people never really ask themselves why someone would pay for their particular goods or services. Likewise, some people go into business with a "Field of Dreams" attitude towards customers - build it and they will come.

Remember, friends are not customers - at least not if you intend to keep them as friends. You may be thinking that former work buddies and colleagues will steer business your way, but will they? Do you expect your friends to risk their own jobs by recommending you to their boss and taking the risk that you drop the ball? Along those same lines, treat clients of your current firm like the brothers and sisters of your best friends - off-limits unless you really want to get a bad reputation. (For more on planning a small business, check out Start Your Own Business.)

Marketing Is Always Part of Your Job
Whether people realize it or not, every business needs marketing to succeed. Some people love the "game" of marketing and truly love interacting with people. To other would-be entrepreneurs, people are those annoying creatures who call up to complain. Likewise, some people have an innate sense (if not a compulsion) of how to "sell themselves"; others are more like church mice who are afraid to speak up.

It is not a deal-breaker if you do not like marketing, or lack the savvy, but you had better make sure you have somebody on board who can drive customers through the door.

It All Rolls Down to You
Ultimately you, and only you, are the one who is responsible for making your business succeed. Moreover, because you are the boss, people will naturally look to you for everything. Some people cannot handle (or at least do not like) that sort of responsibility, and the bigger the business gets, the smaller the number of people who can do it all.

Eventually you will have to deal with delegating authority and trusting other people to do their jobs. This is very difficult for some people, particularly those who like to be in control. Some business people who will happily leave their kids with a sitter they met 10 minutes ago but cannot bear the idea of somebody else handling a client call or closing a deal. Unfortunately, if you cannot delegate, you become one of those "jerk bosses" that inspire other people to go start their own businesses. Or you drop dead from a heart attack. Your choice. (Learn more in Top 7 Myths About Starting A Business.)

Rules and Regulations
Depending upon your business and your location, you may find yourself spending more time with bureaucrats than customers. Licensing, bonding, insurance, inspections and all other manner of details can suck up an inordinate amount of time and money for a fledgling entrepreneur. Worse still, while your competition may have the same burdens, they can afford a small army of lawyers and employees to focus on just those tasks.

This is one area you cannot just ignore - break the wrong rule and you can find your business shattered and your own keister in hot water. Do your homework before you start your business and learn as much as you can about the rules you are going to have to follow. Remember, a library card is cheap, lawyers never are.

Lack of Funds
Simply put, in a small business the economies of scale are almost always against you.

Many new business owners also get a crash course in cash flow. While a "buy now, pay now" business model sounds great in principle, reality says that most customers will pay you sometime after the transaction - and that "sometime" can be as long as 90 days. If you are not collecting cash from your customers, you may not have the funds necessary to pay your bills and actually stay in business. (Learn more in Starting A Small Business In Tough Economic Times.)

Before starting out on your own, make sure you have enough to cover the equipment you will need, the wages you will have to pay and your own income needs for at least several months. A working spouse whose wages can support both of you is certainly helpful. If not, do you what you can to raise afford funds from friends and family (though remember the danger of friend-business interaction) or look into affordable small-business lending options in your community.

Stress
Last and not least, ask yourself if you are cut out to handle the stress that goes with running your own business. How do you handle adversity? How do you handle disappointment? Believe me, you will have both along the way. If you are the type of person that lays awake at night worrying about what could go wrong, you will find no shortage of things to think about when you have your own business.

Not Scared Yet? Great … Good Luck!
If this has persuaded you to stay put and not venture into the small business world that's OK. There is not a single thing wrong with that. If you read this, though, and thought "no big deal, I can handle that" then you just might have what it takes. Either way, make sure you go into this next phase of your life with eyes wide open, prepared for the unexpected.

Catch up on your financial news; read Water Cooler Finance: Billionaire Pledges and Other Positive Press.

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