Be Your Own Boss? Plan for Success!-Part I

As plastic surgery marketing, 10% and job prospects for those seeking employment remain stilted, more and more people are considering pursuit of the dream of owning their own business so they can control their own financial destiny. Many great success stories were born out of adverse situations. For example, Julie Trade of Scottsdale, Arizona was happy as a stay-at-home mom. Then in 2007 her husband was laid off and unable to find a job. She decided to use her marketing background to start a marketing communications business from her home. At first her goal was to make some extra money to make ends meet but as she built her internet marketing skills her business began to grow rapidly. Today, she enjoys a six-figure income.

 
Unfortunately, the majority of new businesses fail within the first four years. Years ago I was the executive producer and host of a cable TV show where I interviewed self-made millionaire entrepreneurs who would share their secrets of success. I’ll never forget the advice one multimillionaire business owner gave me. He said the key to success for any business is three things. The first key is, “Stay close to your numbers.” Let’s see how we can apply this rule to tilt the odds of success in your favor.
 
I often hear that start-up entrepreneurs should expect to lose money for the first three to five years. Nonsense! Your business strategy should include a ‘plan’ to be profitable your first year. Two key points here:
  • Most new businesses require start-up capital to cover rent, equipment, salaries, etc until such time as the business revenue can cover ongoing business expenses. One of the biggest mistakes entrepreneurs make is underestimating these costs. Often the entrepreneur is seeking capital from either a bank or friends and relatives and they typically ask for what they estimate will be needed, which more often than not, turns out to be inadequate. Going back for additional funding typically proves to be a much more daunting task because the entrepreneur has now lost credibility from a business management perspective. To your initial estimate, you should add 50% to 100% because my experience is that you will have underestimated your capital needs by that much money. 
  • Once you’ve raised the needed capital, you’ll need to develop a detailed month-by-month cash flow projection for the first 12 to 24 months of operation along with a summary cash flow estimate for an additional two to three years. Technically, you’ll want to follow three sets of numbers on a monthly basis: Balance Sheet, Profit and Loss Statement and Cash Flow Statement. The Balance Sheet lists all of the business assets, liabilities and net worth. The Profit and Loss Statement tracks income and expenses to arrive at your profit (or loss). The Cash Flow Statement tracks the sources and uses of your cash. Managing your actual income and expenses against your budget will be one of your most important tools for success. In good times, good cash management is your key to growth. In bad times, it’s your key to survival! 
 
For a more detailed review of how to use financial statements to manage your business, go to the Resource Center at www.welchgroup.com; click on ‘Links’; then click on Pro-Forma Financial Statements. Next week, I’ll continue this discussion with the remaining two keys to success.