So You Want to Start Your Own Business

So You Want To Start Your Own Business

Starting you own business is a dream millions of Americans share. Who would not want to rid themselves of their long commute, a boss that is just impossible to work for or their daily grind? Opening your own business, although a nice alternative can come at a hefty price and you really need to be aware of the pitfalls and disappointments that can meet you at every turn.

To begin with, you may be wondering what qualifies me to write this piece. Very simple, I have followed the dream of self-employment and failed. I have made just about every mistake possible and often look back in amazement as to how naïve and yeah, stupid I was. I felt that my idea for a Ravioli and Fresh Pasta shop in a Northern Suburb of NYC would take off so fast that within a year there would be plans for expansion and new outlets. Gracie’s Ravioli would some day go public and at 55, I would be an overnight success. Well you can already see that I was already making mistakes. Now, I’m not saying that by reading this piece you will avoid the mistakes I made and become successful, but maybe there is some advice here you need and a story you should hear before you venture out.

The Water’s Way to Cold to Just Jump In – Any good realtor will tell you the three most important things about real estate are, Location, Location and Location. Well, the three things you need to hear before starting you own business is Research, Research and Research. I am sure your idea is great, but you need to do your homework and then apply what you learned. If you take this step lightly, I promise you that you are setting yourself up for failure. I did 2 years of research before I opened Gracie’s Ravioli. I surveyed potential customers, quizzed other shop owners, visited successful businesses with similar products, talked to vendor’s years before opening and pounded the pavement looking for the right location. My problem, I was way too sold on my idea to apply what I had learned. I ignored the realtor’s claim that my location was bad and didn’t listen to other shop owners that parking in the charming village I chose for Gracie’s was impossible. Apply what you learn when doing your research. Do not feel that your idea is so great it can survive any conditions. Believe me, if your idea is so great it would be out there already.

Money, Money, and Money – No business will survive without adequate capital. Did you read that, if not I repeat – No business will survive without adequate capital. If you have just enough cash to get the doors open, you are going to run into cash flow problems. If you have to borrow money to make payroll, you are going to have to lay people off. If you are hitting credit cards to purchase inventory, you are going to find it difficult to fill the shelves. How much money do you need to feel comfortable? A good 12 months of expenses in a good economy and at least twice that in a poor economy. If you are stating a business from scratch like the one I did, and plan on leasing equipment or buying new fixtures etc., I hope you pockets or someone who loves you a whole lot, are real deep. Remember, it is going to take at least two to three years for your business to get off the ground, no matter how big the buzz or how great the product. I would advise anyone going into business to look at existing businesses that are for sale and have the infrastructure you need to help cut startup expenses. I would also suggest not borrowing cash from the bank, Small Business Association or any loan provider, since they will charge a hefty rate and ask for collateral in one form or another. So, what is the best way to get the cash you need to finance you vision and dream for your business. If you truly believe the business is a home run, and you have the ability to sell the idea, consider selling shares and taking on cash only partners. There is an old expression “the only ship that sinks on dry land is a partnership.” This may be true, but at least you are not putting your home, your family and your total life saving at risk. In hindsight, I wish I would have taken that route.

It’s The Times Three Rule – Believe me, what can go wrong will go wrong a lot more than you expect. Take what you factor for start up cost and multiply by three. Take what you factor to get the doors open and multiply by three. Take what you factor for all the permits and inspections to happen and multiply times three. This is just a fact of starting up a business that is out of your control for the most part and is just going to happen. Contractors, attorneys, vendors, equipment suppliers, town and health department officials as well as anyone else involved in getting the doors open will promise you a speedy turnaround, but believe me this will not happen. All the while you are paying rent, maybe some employees, utilities and fees with zero revenue coming in. When I started Gracie’s Ravioli, my lease began in September. I was hoping to open in time for Thanksgiving. I barely opened in time for Easter. I was combining two spaces one of which was still occupied by a hair salon that was moving three blocks away. She promised to be out by October 1st. I felt the contractors could work around that space and concentrate on getting the kitchen up to speed. She eventually moved out in late February.

Know When to Fold Them – When your business is failing there will be warning signs, don’t ignore them. The number one mistake most small business owners make when their business is failing is taking on more debt. The thinking is, “If I just had a little more cash to get to the end month (quarter, year).” Business owners will borrow and put themselves deeper in dept, oftentimes using retirement saving or money put aside for their children’s college education. I borrowed heavily against my retirement thinking the economy would turn around and when I needed cash after that took on additional short term loans with high interest. Eventually, realizing I was in way over my head I tried selling. Problem was by this time the economy was in such horrible shape no one was buying. Even if I was able to find a buyer, I owed money to so many different people it would have been impossible to close the sale.

You may be saying “what an idiot, how could he have let things get so bad.” Well small business owners that are underfunded make that mistake every day. That’s the reason most small business fail. I never thought I would get to a point where I would lose everything, but it happened. Things got so bad I hated when the phone rang, thinking it was someone looking for a check. Soon afterwards I closed the store, sold off equipment and have begun the process of settling my dept and trying to avoid bankruptcy.

Number One Rule when starting a business “Have an Exit Plan.” – Having an exit plan and reviewing it weekly in difficult times is a must. No one opens a business expecting it to fail, but 80 percent or more do. Realize that fact and be mindful of the warning signs. When things are looking sour, go to your exit plan and start taking action. Maybe it’s putting the business up for sale, or maybe calling in silent partners and discussing a strategy for the short term. Whatever you plan, stick to it. Develop your plan with advice form your attorney, accountant and vested partners. You have invested a lot of time, energy and hard earned money in this venture. Realize that you may have to sallow some pride and move on. Before you loose everything and the creators are no longer your friends, follow the exit plan you put in place years earlier. No one wants or expects the business to fail, but even more no one wants to suffer the financial consequences that come without a fool proof exit plan.

I wish you nothing but good luck in your business, and I hope it will be successful. Just be sure to plan your work and work your plan. Follow your research and listen for the warning signs.


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