Have you ever thought about starting your own business? What are some of your ideas? Are they big or small; simple or unrealistic; innovative or a mild tweak of the already-existent? What are the chances that your business idea will take off? What if your business tanks?
These are the questions I often ask myself before moving forward with a business venture and they are definitely important, but if I don’t have the correct answers for the questions below, I absolutely do not move forward with my business idea.
- How much is the initial investment?
- How much is the potential return?
Just over a year ago, I started brainstorming business ideas. I knew that I wanted to earn some additional income (besides my day-job), but I had no idea where to start. I had always had dreams of opening a golf store (I actually developed a business plan for it in my college marketing class), but then I started asking myself the 2 important questions.
How much is the initial investment?
For a golf store? Well, I would need to purchase a building, order some inventory, hire some employees, and set up insurance. All in all, the initial investment could easily be $250,000, if not more.
What is the potential return?
I had to be honest with myself here. The mark-up on a golf club may be large, but after all of the monthly expenses of my store, I may not even make a profit in the first couple of years!
Why would I possibly pay out such a huge initial investment to maybe, possibly, make a little bit of money? That is one HUGE risk!!
The Smart Business Venture
When we live in a world that is so driven by the Internet, I certainly consider the “brick-and-mortar” approach (that I described above) to be the dumb way to go into business. The necessary investment is high, the potential return is low, and the risk is astronomical!
Lesson 1: Start Small
Instead of opening a store, I decided to begin a financial blog. The investment was unbelievably low, the potential return was moderate-to-high, and the risk was nearly zero! To set up my website and get it hosted for 1 year, it cost me a whopping $44. In that 1 year time-frame, I made over $5,000. Compared to that $44 investment, that was a pretty huge return!
If you had aspirations to open a store like me, perhaps you should take your aspirations online! Cut back on your desired inventory, come up with a good domain name, and see what happens!
Lesson 2: Grow Slowly and Avoid Financing
I have learned a lot by running my financial blog. Mainly, I have learned that there is a ton of room for growth and expansion. In addition to my regular writing, I could publish an eBook, begin a speaker series, or build niche websites! There really is an endless list to how I could expand my business to earn additional revenue. Rather than dive into every growth opportunity, I often have to step back and make sure the funds are available.
There is no reason to finance the growth of your company. If you can’t afford the next stage of your business with cash, then I would suggest that it’s not time to expand.
Think about it. You have an idea that the direction you’re heading is the right one, but what if it’s not? What if you take on debt to implement this idea and your business goes south? Now you not only have the business fundamentals to worry about, but you also need to worry about paying the bank for your loan.
If you would have used cash, you would have tacked it up as a mistake and gotten on with your life. There would have been no fears about paying the bank, and you could have concentrated all of your efforts toward your business. It’s just a better scenario for the long-term. Let’s face it, not all of your ideas are going to be genius. Some of them WILL fail. Expect success but plan for failure.
Are you being smart about your next business move?