First Step In Starting A Business - A Rule to Understand

In the movie “Wall Street” Gordon Gekko said to Bud Fox “First Rule in business. Never get emotional about stock, it clouds your judgment.” I would like to add an additional rule of business. This is a rule that a business owner needs to be consistently mindful whether they are currently in business or just Starting a Business.

The rule is "there is simply no state of neutrality". Your business is either going up or going down. Let’s say you are doing 1M in sales in a year and from that you as the owner are able to take a 100k salary per year salary. Let’s say that a 100k per salary is very comfortable for you and you can see yourself living comfortably with that salary for the rest of your career. So you try to develop a strategy to do 1M per year every year. My point is that no matter how great that strategy sounds it is likely to fail. Since there is really no state of neutrality if you are not striving to increase you will probably decrease. I know things can feel very comfortable with a certain sales volume but in business, things can get very uncomfortable in a hurry by just a few unfavorable events. If you are a business owner you must understand that something always challenges your business, whether it is losing a big customer, the economic conditions are down, your industry is down or anyone of a million other things go wrong. Since this condition of “something always challenging your business” always exists you must always figure out how to increase sales. You as a business owner must always be proactively seeking ways to do things more efficiently, more profitable and you must always seek ways of increasing sales because there simply is no state of neutrality. Whether you are currently in business or just Starting a Business please keep this rule in mind.

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If you are thinking of starting a business…

If you are thinking of starting a business you must possess four things before you waste your time:

1. A Strong Passion and love for what you will be doing
2. A discipline to do the things you need to do
3. An undying faith that what you are doing is productive and
valuable to the customer
4. The courage not to be frozen by fear.

I once had a client who after just listening to a few sentences I could tell this person’s primary reason for starting a business was they thought they could make a lot of money.

There was no passion and love for what they were going to do. Which means as soon as the first obstacle comes along (and it will) this person will get bored and frustrated easy and the effort will dwindle.

You could easily see that whatever had to be done in the business to make it successful would probably be put aside as it is very difficult to have the discipline to do the things that need to be done if you do not have the passion and fire in the belly about what you are doing.

When obstacles start to appear in rapid succession you can see this person will lose faith easily and then as the cash flow suffers they will be frozen by the fear.

Starting a business is not easy and it starts with a gut check. Look yourself in the mirror and ask yourself if you have these four characteristics and if you do then go for it!

If not, you need to re-think the situation. Remember the primary reason to start a business cannot be to make a lot of money. Money is the result of running a successful business. It cannot be the reason to go into business.

Cash Needs

When starting a business venture I have never seen an entrepreneur (including myself) estimate cash required for a venture any where close to what actually happened. The inherent optimism of being an entrepreneur automatically seems to dictate that cash needs will be underestimated. By the way, most venture capitalists, angel groups and private investors whom you generate interest to your venture know this. I have spoken with many investors and investor groups and they tell me they basically throw out the window whatever the entrepreneur projects for cash needed. The problem is that underestimating cash needs at the beginning of a business venture creates cash flow problems somewhere down the line. Because entrepreneurs always underestimate cash needs, the search for money needs to be consistent and continuous. However it is always wise to take the money you think you need and double it. It is also wise to have someone on your management team or better yet outside your management team who is good with numbers and forecasting challenge the entrepreneur’s projection of cash needs. I cannot over emphasize the need to overshoot your cash need projections otherwise you are almost certain to undershoot them. Even if your cash needs are conservative you still need to constantly look for more money. As I have said many times, since cash flow is the life blood of any business it is critical to make sure your cash supply is always right.

Starting A Business

When Starting a Business unexpected events can cause cash flow problems. All of the forecasting tools in the world is not going to catch this one. No matter who you are and no matter what business you are in, I am telling you that by virtue of the fact that you are in business something always happens in a business that you never expect. By the way, something unexpected usually happens more than once. These unexpected occurrences can put you out of business and they are inevitable. This is why your salary needs to be conservative; this is why you need to constantly cut overhead, this is why you cannot withstand slow paying customers, this is why you have to be on guard for employee theft, this is why you have to manage your debt and this is why you have to make decisions proactively versus reactively.

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