Many Australians dream of owning a business, and I am approached often for my opinions on the matter.
Here’s a few questions to ask yourself before becoming a business owner:
What is the demand?
A business can only succeed if it meets a demand. So your first job is to ascertain the aggregate demand for your goods and services. You can get information from business intelligence services, government agencies and industry bodies. You must understand demand before opening your doors.
What do I bring?
Can you do the same as your competition, cheaper or faster or better? Will you work for less, do you have better technology, better employees, newer systems, greater innovation etc? Are you meeting excess demand with a me-too idea? All successful business people know what they bring to the market and they capitalise on it. So, you should know exactly why the market will deal with you and not your competitors. Know what makes you different and what it’s worth.
Do I have the money?
There are well defined cash flow dynamics in business – they operate around the average billing cycles and payment cycles. You should be able to chart the peaks and troughs of your cash flow so you can match outgoings to payment cycles and not run out of money. Having charted these dynamics, you can work out when and why you will need outside capital, in the form of a bank loan or other facility. Credit should always be planned in advance and you can get an accountant to do this as part of your planning if you don’t fully understand it. The worst position is to reach a critical point where you drop prices to push sales, thus reducing your profit margin. Advanced planning for capital avoids this disastrous spiral.
Can I build a team?
The idea of the business owner being a lone genius, doing all the thinking, is a dangerous fantasy. All successful business owners have a team of people who can add to their business goals. And these people must be rewarded and given incentives to keep them going. In general, a business owner first needs excellent people to cover the finance, operations and sales roles. That leaves you as the leader.
Am I a business owner?
Ask yourself: can I rise early, work myself to a stand still, spend all night doing paperwork and never take a holiday? Can I carry every decision on my own shoulders? Can I live a life when I’m never off the clock? If you prefer life to be predictable and you like a 40-hour week, perhaps proprietorship is not for you.
The business life is a wonderful challenge and a great way to contribute to society. However, I would advise anyone wanting to go into business to start with one simple rule: know your purpose. Business can be a hard, lonely, exhausting road and you’ll need to know why you’re doing this before you start the journey.
Mark Bouris is executive chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting and tax, and insurance.
This article first appeared on Property Observer.