Why This Question Matters
By Paul E. Casey
Can you balance your checkbook? Do you have a savings account? Do you know how to manage your credit cards? Or are you always behind on your payments?
Your ability to manage personal finances has everything to do with your success or failure as a small business owner.
If you don’t bring in more money than you spend - you will fail. Brilliant observation, right? It seems obvious but how many millions of small businesses failed because the owner is neither financially competent or disciplined.
I was hosting my radio show on small business success and a caller called in with the idea of starting an educational center that targeted young adults. The concept sounded viable, and it certainly filled a niche. I asked about finances, and she said that she was too far in debt to use any of her own money.
I stopped her right there. Our conversation was over as far as I was concerned. If you don’t have a handle on your personal finances, you have no business going into business.
I believe that you should be in a position to invest at least 25% of your personal income (preferably more) into your startup operation. Scale your startup business to what you can afford. Avoid borrowing money from investors as much as possible. (If you want to tutor children, perhaps you could start your business out of your home or apartment.) I can absolutely guarantee that if your own money is invested in this game, you will watch the bottom line a lot closer.
In my first ten years in business, I drove a used car with no monthly payments. I was also successful in negotiating free office space. It was a rat hole of a space, but it was free. Since there is truly no free lunch, the condition for the free office space was that I had to print my newspaper at that particular publishing house. I later calculated that by driving a used car and negotiating free office space, I saved my company over $400,000 in a ten-year period. That is real money.
The decisions you make prior to even writing your business plan will dictate whether or not you will succeed in the long run. For example, you might ask yourself: Should I go into business with a partner?
What happens when you take on a partner? You have just cut your income potential in half. I am not suggesting that you shouldn't consider a partner under any circumstances. But I also suggest that you really examine your motives. Is it because you don’t have the confidence to run your business yourself? Is it because you don’t like to sell? (See test question on selling.) These are not valid reasons to bring on a partner. Real entrepreneurs don’t need partners. (Mentors and free agents, yes! But partners, no.)
Bottom Line: If you haven’t been fiscally disciplined in your personal life, how can you expect to be fiscally disciplined when it comes to sustaining your business? Don’t even think about starting your own business until you have paid off your credit cards and developed a healthy savings account.
Click here to find out more about available resources on successfully sustaining your small business.
I believe that you should be in a position to invest at least 25% of your personal income (preferably more) into your startup operation. Scale your startup business to what you can afford.