Unlimited earning potential. You set your own schedule. You sign the checks. Your commute is in your hands. Who doesn’t want that?
The terminology of the day is start-up, or maybe entrepreneur. One invokes visions of a venture capital back tech company and the other a rapper slinging an energy drink. What about the guy or gal who starts a business he believes in and builds from the profits of the business? Bootstrappers, these are the real heroes of small business in my eyes. Not that I am against a quick profit or a VC backed deal. Sign me up. It is just a different kind of business all together.
You have the idea. Check. You have enough dimes to pay for internet time at Starbucks. Check. You have a lead on your first client, deal, or sale. Check. Now what?
Every article says Business Plan first. I disagree. Start with a goal. Is it a dollar amount, a life-style, or ego? Start there before investing an ounce of energy or a dime into the next step. Once you have a clear reason for venturing out of the world of employee and into the world of business owner, then it’s time to start your business plan.
One important thing to keep in mind on the road to being a business owner is that you first have to become self-employed. These are two very different things. I am borrowing and merging two concepts here from two very helpful books. One is The E-Myth by Michael E. Berber and the other is The CashFlow Quadrant by Rich Dad, Poor Dad author, Robert T. Kiyosaki. As with any business book, I do not agree with 100% of the approach or content but in regard to what being a business owner is, these two books do a fantastic job.
Here is the long and short of it, all of us are one of four types of people. In order of worst to best: Self-employed, employee, business owner, and finally investor. Let’s just walk through how you get to being a self-employed person to a business owner. The majority of small business owners must pass through the painful process of being self-employed. Here is the major difference: A self-employed individual’s income is solely based on their hours of work, whereas a business owner’s income is based on the profitability of the business.
For example, a man named Jeff decides that his passion is baking. He quits his job and leaves the security of being an employee with benefits and the option to get unemployment if he was to be laid off. He starts getting the word out that he is for hire. He gets some orders and starts to bake. He sells his goods and after paying his bills he makes a nice profit for himself. Jeff at this point is self-employed. After a couple months orders start rolling in and Jeff has to start turning away business; his next move, hire. This is the most crucial decision that he will make. At first he will make less money. His profitability will go into the tank. But, Jeff is about to become a business owner. Orders grow and now Jeff runs a bakery. His presence is not crucial in the making of money in his business. That does not mean he is not crucial. Jeff now handles the finances and marketing and the growth of the company is not tied to the amount of hours he can put in baking. Never lose sight of becoming a business owner. That will provide you the true freedom of chasing your dreams.
You have your business model nailed and a clear path to how to get the ball-rolling. The next step is to get organized.
From day one this is the biggest mistake new business owners make. Make sure that you understand the order in which things must happen. Permits, Certificates of Authority, tax accounts, company formation, payroll, and the list goes on. This all happens before day one. Once day one happens you will lose more valuable time trying to do all this on the fly. You will also more than likely be non-compliant with some state or federal agency. This can cost you your business.
Once you have the legalese and company organization done, it is time to tackle finance. Once again this happens before day one. The possibility of being penny wise and pound foolish is very high. Recognize the value in having a solid accounting and bookkeeping system on day one. This will ultimately save you time and money. It cost a lot more to pick up the pieces of screwed up books. Don’t ever forget that you have a partner in your business, Uncle Sam. He is not very understanding of mistakes.
Bookkeeping is data entry. It is not rocket science. What is important is to do it right. This can be accomplished by having a solid system set up from day one with standard operating processes in place to capture the data efficiently and effectively. Consult an accountant or a pro on your chart of accounts. You will be living with this decision for a while. It doesn’t need to be complicated. Keep it simple to start.
Now you have the system in place start to think about the analytical side of the books. The bookkeeping is a necessary operational function for your numbers to tell you the health of you business and where you are failing and succeeding. Deciphering the numbers can be a daunting task, and to those who don’t speak the language it can be overwhelming. If this is the case for you, hire someone to help you translate. If you do not understand the story the numbers are telling you then you are flying blind.
Now you are off to the races and the real work begins. Don’t ever forget that you must stay on top of your businesses organization. The biggest mistakes can hide behind your successes. But they will always come back to bite you in the ass. Revisit the process often and tweak your capture practices daily. Detailed data can tell you everything you need to know about whether you are succeeding or failing.