So, you want to start a business!

This information and summary is geared toward people who want to start a business or already have one. It is devoted to those who are primarily passionate about a great product or service and believe that is all you need. Additionally, to those who are considering, or are already engaged in a trade or offering professional services. Regardless of your interest, I hope it is valuable to all.

Every business needs sales! I am sure that some of you who are reading this are sales professionals. As sales people, you may or may not actually provide the product or service, you may or may not even offer support after the sale. Your world may be only about one thing, selling. If this is true, then your focus may be all about higher commission as it relates to your personal income. This can also be a bit of a trap. For the most part, this additional income will be to enhance your lifestyle. After all, isn’t that what it’s all about! The American Dream, right! Nice home, in a nice neighborhood, with good schools for your kids to attend. Cars, boat, cabin, toys, vacation, etc. and maybe even a little going to the 401K/retirement . For those professional sales people, focusing on sales is a no-brainer, it’s their whole life! For those rare people who are extraordinary in sales they are unique and their value to a company is tremendous. This is why they are compensated at the higher end of the spectrum. Yet, being a great sales person does not mean you are a business person or would be good at building a business. Just like those who are fixated on the product or service side of the business they forget the other necessary elements. Statistically, sales people don’t make good business owners and rarely build companies with large organizations. They see the profits of the business as more money to buy more things to enhance their lifestyle. Often their revenue goals for the business are tied directly to the reward it will provide to the lifestyle of themselves and their families, boat, cabin, etc. In fact, they can’t understand why anyone would see it any other way!

In contrast, a business person lives and dies the success of the business. Their passion is making every element and aspect of the business hum like a well oiled machine. Like a conductor of an orchestra when everyone is playing in sync, they marvel with pride as all the elements become one in harmony. These are TRUE business people and this is the key! They are interested in the financial success of the business only to the extent that it is the metric that measures it's overall success, growth and expansion. Their business is like their child whom they want to see succeed and flourish with little consideration as to how it might affect their lifestyle. This is their MISSION! Certainly they (like everyone) want a nice life for they and their families but that is secondary to the business's individual success. Non-business people just don't think this way!

Really great sales people are great at selling and but are typically not good at managing money, saving or building net worth which are all requirements if you want to build a business that becomes an asset and can be sold. Remember, I said sales people are TYPICALLY this way, not always. There are many exceptions to every rule! So, if this DOES describe you, take heed! You must delay your gratification.

Nevertheless, for all their statistical shortcomings and character flaws good sales people possess the single most important skill the business requires. We could literally call it, The OXYGEN of the business! The ability to generate ongoing raw revenue. Without the ability to accomplish this one thing ongoing; you really don’t need to waste a lot of time worrying about anything else. Yet, there is great consolation for the would-be business owner who is not a sales person and is focused on the product and service quality. In fact, it might actually be an asset. Having said that, it is YOUR business after all so we should expect a level of sales passion that might not otherwise exist. So, although you may not be a sales person per se, at the very least you damn sure better understand sales! So what am I trying to communicate, you need both these things and much more!

When considering the type of business, you want to build, at some point you must decide: 

1) do you just want to be a one-person show? 

2) do you want to build a team that essentially supports your personal efforts? 

3) do you want to build large organization/ corporation?

The only one that has substantial value and can be financed and sold as an asset is #3. Here again, there are a few exceptions to this rule.

Most of this can also be associated with an educational path!

So, before considering or choosing a business look at the financials of a similar existing business and consider very carefully the margins. If you are considering an educational path, consider your potential income compared with the investment you will make in both time and money.

Your personal income from the business is NOT profit and will only be considered an asset if you don’t it! Even when it is taxed as such (personal income) you should still keep it as retained earnings in the business account, critical point here!

1) Do not focus primarily on your skills and what you can offer the world (the craft, trade or profession). While this component is not unimportant it is not THE most important. Instead focus and what the world wants, needs and most importantly what are they willing to pay for. Then consider how you will offer this and how you will make the most money possible doing it! If you reject this line of thinking because you are NOT purely a business person, but rather are driven by fulfillment and passion. Then, at the very least, consider your skill set and aptitudes within this context. In other words, what are the 3-5 things that fit within your core competency. These 3-5 things should also be products or services you could be passionate about. Now consider, of those things witch one will make you most money for time spent (leverage) and have the greatest margins as a business.

2) How much do you need to earn to have a reasonably happy lifestyle? I'll bet some of you would like to have an UNREASONABLY happy lifestyle! This is the #1 issue I see when coaching small business owners. If you want more information on this very important point, ask me. This is the major reason small business fail to grow or fail altogether.

3) Sales is as important as financial forecasting. Your primary goal is to build a predictable and scale-able delivery system for new customers and revenue. You must know how much time or money it takes to get a consistent result. In other words if you put this much time or money into marketing and sales you can predictably expect to get this consistent result in the form of revenue. Without this dependable delivery system you cannot manage growth and you do not have a scale-able model to build a business.

4) Don’t hover in the middle, Low cost – High volume (High cost – low volume). These are two very different things. You must be specific with your product or service offering. If you are going to offer a low cost product you must make your money on high volume. It will be all about price and speed and your customer will be the masses. If you offer a bespoke product or service you will charge a premium price. You must focus on those clients who appreciate finer distinctions and are willing to, and can afford to, purchase your products or services. product positioning is very important. Choose one or the other or you may not survive.

5) A business built on products is generally easier to scale. Once you build the model and proof of concept, it can generally be duplicated.

6) A business built on services is harder to scale. That said, the more generic the service the easier to scale. Higher end professional services are much harder to duplicate and scale. These extraordinary professionals are few and far between and can be a bit like herding cats. Often you will find you may simply be training your own competition when building this type of business.

7) If your business is not scale-able and will not function in the same way without you and your expertise, your business will have very little sale-able asset value.

8) If your business does not require the purchase of equipment and real estate, you will have a greater challenge building your net-worth. You have nothing but your income. Without the necessity to purchase these assets to grow the business, most business owners will spend the money on lifestyle. Consequently, they will not build net worth. It is not about discipline, just a direct consequence of the type of business you are in. Additionally, one business owner has assets to collateralize when seeking a business expansion loan to grow. The other business owner does not have these assets and they have probably spent the money on lifestyle. Consequently, they cannot grow and expand.

9) So, if your business is not scale-able and/or requires the purchase of hard assets; you must spend less than you earn and invest in assets that can be scaled with your discretionary income. If you do not do this, you may have a great lifestyle but will find it harder to build true wealth. To overcome this obstacle requires discipline and proves very challenging for small business owners.

One of the top goals of a business should be to finance and purchase the space it occupies.

1) Tangible assets are easier to value, finance, and sell. Blue sky business (a going concern without hard assets) is harder to value, finance, sell, and also can be more volatile.

2) If your business requires equipment and inventory you will off-offhandedly build asset value as a direct result of the growth of your business.

3) The time horizon of your business plan should be 5 years. This is a sprint, not a marathon. If you want to build a business in 5 years that will sell for $5 million dollars. Find similar businesses that have recently sold for $5 Million or more. Determine the metric's that were used in valuation. You now know what your business must look like in 5 years. Then go about developing a methodical business plan to get there. You don't just build your business, you morph it into the model you are trying to recreate. The more detailed your plan, the more likely it is you will succeed. In 5 years you sell it and move on to something else. If you do not sell it then apparently you chose to buy it yourself (insomuch as you kept it). You now write a NEW 5 year business plan to take it to the next level.

4) You must become a financial person!  

I will provide more insight on this topic below in the coming weeks.

Coming soon: This will relate to managing cash-flow as it relates to the cyclical nature of your business and it's revenue. Specifically, the HIGH & LOW side of the income cycle and the HIGH & LOW side of the Expense cycle. We will also talk about personal income and expenses as it relates to this.

We are Financial & Business Coaches. We offer consulting services for all manner of financial goals. I hope you will listen to my radio show and Podcasts (Cover Your Assets), visit our page and consider retaining our services in the pursuit of your objectives.

Very sincerely,

Todd A Rooker