Herman School of Business
Two Costs of Starting a Business...
People understand that to start or buy a business there is going to be a cost associated with the endeavor. Those with a passion to own a company oftentimes only think of one set of numbers when they look at the venture.
Is it going to cost five thousand, twenty-five thousand…or perhaps several hundred thousand dollars to get your idea off the ground? One thing is usually true regardless of the cost. It is enough that it hurts, and you wish you had more than you do. The money sunk into a new venture is a moving target. It keeps getting farther and farther away from where you thought it would be. Now, knowing that this cost somehow knows exactly how much you can afford, and then exceeds it a bit, means you have to wake up to the fact that COST is a living thing. A living thing you better learn how to control or it will swamp you. I have never met an owner who came in under budget. Stop. Reread that please. I have never met an owner who came in under budget.
You are certain your business idea is brilliant. It is a “can’t miss scheme.” The world can’t wait to be your customer. You will hire, train and manage outstanding employees. Or you will be the best one man band operating flawlessly from the starting line until you reach the riches awaiting you. And yet, the very first thing you did, creating a budget to buy or start your venture, was WRONG. Some people ignore that fact and keep going, others realize the truth and it just adds to the stress level you already have.
OK, now that we have the depressing fact that you will spend more than you expected, and almost always more than you have…let’s point out another reality about the second cost of your project. Usually people start a new venture or buy a new business in exchange of a job or other business that they have. And that job or business is usually paying them a salary, or at least provides them some cash flow. And guess what Mr. or Mrs. or Ms. New Business Owner? That income is gone. The time and energy to get the new thing going usually means you have given up something else that will further drain you because not only are you putting out more than you have, you are now taking in a lot less, and perhaps none of what you used to make.
Suddenly, several months into the new venture it hits you. Sure you spent twenty percent more than expected, but you forgot to account for the cash not coming in anymore. It affects you regardless of your economic position in life. When I decided to buy the ABACROMBIE it followed my selling Equity Partners, Inc. Yes, I had money from the sale of the business. But my income dropped significantly from my “working” days. Last year we sold the ABACROMBIE and my energy is directed towards being a writer and becoming a speaker. While there are costs associated with starting this new endeavor, I am not working and therefore every person reading this who gets a W-2 makes more salary than I do, regardless of my net worth. Yes, my investments make money…but my personal efforts daily are the same as every new business owner…it will take time to create a positive cash flow.
The simple fact that your income will disappear for awhile should make you think twice about your leap into a new venture. And it certainly motivates you to complete the steps it takes to get to the finish line. Don’t forget the second “cost” when starting your venture…don’t forget you are also investing your salary that you gave up.
- Posted: 30 May 2008
- Comments: 1
- Category: Starting a business
Regarding the cost of investing your salary. I recently talked to a business broker who spoke of this. He thinks people in their 30’s or younger, have capacity to take bigger risks than older works, age 60 or over. His justification was younger workers have more time to recover from money losses than older workers.
HERMAN SAYS: The notion that younger people can rebound better than older people if things go wrong doesn't take into consideration that with age sometimes comes wisdom.Written by Richard on 30 May 2008