Have you ever wondered if you are cut out for being an entrepreneur?
The excitement of ditching the 9-5, working from home, or starting a side-hustle is something I’m sure you hear about almost every day.
We hear about the digital nomads of the world – who work from anywhere and travel from country to country on a whim.
How about the individuals who quit their jobs and now make 10x the money they did while working for someone else?
Or, on a more simplistic level, how about the individual who has a side-hustle making jewelry and makes enough for their family to go on one nice vacation a year just off of the money they are making.
The great thing about being an entrepreneur is that it can take many different forms.
Wither you want to work exclusively online as a dropshipper, blogger, coach, etc., or going the traditional route with a physical location; there are endless possibilities to meet your specific desire or needs.
So how do you know if you are ready to try your hand at being one?
Because we all know there are many individuals who are “business owners” who are not exactly living the dream-life you see portrayed on social media.
There is also no shortage of wannapreneurs out there. These are the individual who like to talk about being business owners but, in reality, they are just wannabes.
For this post we are talking about the individuals that want to build a real business. One that will provide them with the means to live a fulfilling life, and more importantly, make a difference.
The truth is, if you want to be successful when starting a business there are important steps you should take today that will help you prepare to do so.
Let’s take a look at the 4 steps you should take before starting a business.
While these steps do not guarantee success, they will give you a solid foundation that will greatly improve your chances of succeeding.
1- Work on Your Own Personal Development
While this one may not seem as obvious or glamorous, it is in my opinion the most important.
There are many disciplines a business owner must have if they want to be successful.
If you are an employee of someone else, you likely don’t see the things that happen below the surface.
Similar to an iceberg that may seem insignificant from above, there is something more complex going on below the surface, something much bigger.
So it is with being a business owner. There are many areas and disciplines you must work on to succeed – and most of these are unseen.
Many business owners start their companies while working for someone else.
This requires long hours as the majority of their time during the day was spent working for someone else – which left late at night or early in the morning to start their business.
Often requiring them to go to bed very late, just to turn around and get up hours before everyone else.
This type of behavior takes discipline.
Starting a business also has a way of testing your determination.
There are many times when you will feel like giving up. The process of starting a business works as a refiner’s fire of sorts.
The strength that comes as you persevere not only adds character, but furthers your resolve to never give up.
Business owners also spend a great deal of their time learning.
At the current place you work there is likely an HR, accounting, marketing, customer support, and IT departments.
As a business owner you will have these departments as well, but the main difference is that in the early years you will likely fill each of those roles yourself.
This requires young business owners to take time to research these areas so they can fix issues and operate their business.
I have often said the true value in gaining wealth in personal finance comes in the refinement and discipline we learn as individuals.
The same can and should be said for business owners.
In fact, one of the biggest obstacles a business owner faces is that of Imposter Syndrome – also called Fraud Syndrome.
This is self-imposed doubt or fear that an individual has because of not feeling like they are good enough.
They doubt their ability and believe they will be exposed as a fraud if they proceed.
Fear in all of its ugly forms must be conquered as an entrepreneur.
A 2011 research study found that nearly 70% of individuals will experience imposter syndrome at some point in their lives.
It usually rears its head when you are doing something that puts you completely out of your comfort zone.
For this reason, you are likely to encounter it when you start a business – unless you are one of the lucky 30%.
Learning to overcomes these doubts, fears, and weaknesses is a necessary growth step for those who want to start a business.
Even if you don’t feel this fear yourself, the world – even the ones that are closest to you – may try to impose it on you.
Oprah Winfrey shared a story about this. One day – even after her success was substantial – someone leaned over to her and said, “maybe it isn’t all luck for you after all.”
Even after she had made a name for herself, there were still thoughts of imposter syndrome – both self-imposed and from the outside.
Having the firm conviction that you belong is a vital step – even for the most successful among us – like Oprah.
You cannot separate the personal growth from the business growth – they are one and the same.
Leading up to starting your business, it is vital to start taking these steps of personal development.
It is unreasonable to think these attributes will magically come right when you start a business.
If you research many of the successful entrepreneurs of the world, you will see that their personal development preceded their business success.
You will also see many examples of the lack of disciplines and how it ended someone’s dream of owning a business.
For this reason, this should be your first step if you are wanting to start a business – start with strengthening your personal foundation through personal development.
2- Put Your Finances in Order
According to Bloomberg news, 80% of entrepreneurs fail in the first 18 months.
That is a staggering statistic, and probably a little concerning for someone who wants to start one.
While there are many factors affecting this high failure rate, it ultimately comes down to not making enough money or managing the money you do make correctly.
I cannot help but wonder how much of this is affected by personal finances.
After all, if you are not able to properly manage your own personal cash flow, how can you do it with a business – which is essentially personal finance on steroids.
For this reason, if you are looking to start a business, you must not only understand personal finance, but also master it.
There are two primary reasons this is important.
First, if you are not secure in with your own financial situation, it will put pressure on your business.
Whatever you take form your business in the form of income is now gone and cannot be used to grow.
If you are conflicted between needing the cash to live yourself, and money to pay your employees or grow your business, you are on crash landing.
Second, whatever bad decisions you made on the personal side will likely funnel over to the business side.
This will only be amplified because your revenues coming in will be much higher than a standard pay check, which means you will have much larger sums of money to manage – with more chances to make bad decisions.
There is a lot more room for error in a business.
There are many other reasons this should be a focus, but these two seem to be paramount to me.
So, what specifically do you need to do with your Finances?
- Eliminate debt
Getting rid of your debt is a must. If you are heavy with your own personal debt obligations, the slow months of owning a business are going to be even more worrisome.
Your goals should be getting as lean as possible when it comes to your monthly expenses, and having your debt paid down is a vital step in this.
A good tip would be getting rid of car payments, or at least getting the payment as low as possible through refinancing or down-grading.
Paying off your credit cards and learning to live without depending on them is key.
If it is not possible to get rid of all of your debt – excluding your home – the goal should be to get as close as possible.
- 6 Months of Savings
Focus on beefing up your reserves, aka savings. If there are months you are not able to take pay from your company, this will give you something to fall back on.
This is a similar requirement when you buy an investment property. The bank wants to see a few months of reserves.
Why? Because they know you are more likely to default on your loan if you don’t have money as a back-up.
They know that there will be some months when your renters will not pay, and having money in reserve helps protect you and them.
A business is no different. You are more likely to go bust if there is not a little money set aside.
- Working Capital
Having money to operate your business – this is on top of the reserves we just discussed – is very important.
You will likely do business with individuals that will not pay right away. It is not uncommon for many industries to pay 30-90 days out after billing.
This is enough to crush you financially if you don’t have operating capital.
If your money is tied up in your receivables, it will be hard to fund future inventory or growth.
Working capital is a must.
- Spending Reviews
If you’ve followed my other post, you’ve probably recognized I am not big on budgets.
Here is a prior blog post that covers spending reviews and budgets, but the general reason I feel this way is because I’ve noticed that the rigors of having a budget cause individuals to quit before they really get started.
A budget is more task oriented than change oriented.
I prefer to follow a spending review. I find these to be more effective for real change. Again, follow the link above to read more about them.
Whatever you call your money management, the key is learning how to account for your money.
If you are not able to keep track of your personal expenses, you’ll likely struggle as a business owner.
A good first step is to master your own spending, so when you magnify this by owning a business, you will be ready.
- Review Your Housing Expense
If there are any other expenses that are out of the norm or too high, focus on getting them as low as possible.
For example, if you own a home and your housing payment is more than 25% of your take-home pay, look for ways to limit this payment.
If you rent, look around and see if there are less expensive options.
The key is to get your expenses as low as possible.
I am not necessarily advocating selling your home, as that has a lot of cost and will add disruption to your family.
With that being said, your housing must be carefully evaluated to make sure it isn’t going to hurt your ability to start or succeed with a business.
The more care you take in getting your finances in order, the more likely you are to succeed when starting a business.
3- Come Up With your Idea for Starting a Business
For many of us this is the hardest part.
Where to even get started?
I like to perform a simple exercise that will help get the ideas flowing.
Take a piece of paper, turn it long ways, and divide it into 3 columns.
Name the left column: Skills I currently have.
The middle column: This is the crossover between the left and right column. This represent business ideas.
And the right column: Areas I am interested in. This can represent areas that you either have skills in or want to develops skills around.
Here is a sample I created:
You will likely find that there are things you are good at (column 1) but don’t particularly like (not in column 3). You may want to avoid these areas if you lack the passion for it.
I then proceed to make a list in both the right and left columns with items that fit into each category.
I try to be as thorough as possible when I make both lists. Honesty with yourself is important when doing this.
Once I have listed both columns, I look for areas where there is overlap, this is the middle column, this is my crossover.
This helps me better understand what I am not only good at, but also have an interest in.
That isn’t to say you can’t start a business in an area that doesn’t have crossover, I just don’t think you will be as effective.
If you lack the passion or knowledge, you will likely have a tough road ahead of you.
If there are areas you are not knowledgeable in but have a passion for, take the time to learn prior to starting.
You may even want to switch fields as a paid employee while you learn the ropes so you can later do it on your own.
4- Start a Side Hustle
We are finally to the exciting part.
The term side hustle is not new to you, I’m sure. You hear it almost anywhere you turn on social media, especially if you follow the personal finance groups.
A side hustle is exactly that. Something you can work on outside of the hours that produce your full-time income.
The side hustle is especially valuable because it limits the risk by testing before you fully start a business.
Because you have now implemented the 3 steps before starting a side hustle, once you get to this phase, you are better prepared to start testing an idea.
You have now been working on your own discipline, mastered your money, isolated an area to work on, and now it’s time to get started.
When it comes to this phase you are interested in doing it small-scale so you know if there is a need for your product or service.
Imagine building some widget or product, buying thousands of units, only to realize nobody wants to buy your particular unicorn product (which is unlikely because almost anything with a unicorn sells these days).
You get the point.
You can reasonably test your product or service before going all in. As Daymond John from the Shark Tank series often says, you must get the orders before you produce the goods.
There is a lot of wisdom in this. Find out how people feel about what you have, and then go big with it.
This period will also help you determine if you are cut out for the stresses of working for yourself.
You will better be able to gauge if you like the long hours, the uncertainty of your paycheck, stress, working in an isolated manner, etc.
You may find it isn’t for you, and that’s okay.
At least you will have found out before investing all of your savings and quitting your job.
Take as much time as you need in this phase, as you want to be certain you are making the correct choice.
The financial toll can be catastrophic if you are not doing it correctly, so limit any negative impact by thoroughly testing yourself during this phase.
The last thing you want is to go all-in on something you are unsure of.
As Warren Buffet says, “Rule #1 is to never lose money. Rule #2, never forget Rule #1.”
You don’t want to ruin your financial progress when you are in the testing mode. Be cautious and remember not to lose money.
This is especially true for someone who has less than 20 years to retire.
Conclusion for Starting a Business
With the extra work, risk, and stress associated with owning a business why would anybody want to do it?
In one word: Freedom.
There is a freedom associated with being a business owner that employees never experience.
The freedom of time.
This may not be the case in the early years, but if you do it correctly, the goal is to develop a business that can operate without your attention – this is passive income.
This will give you time for the things you enjoy.
The freedom of money.
When you work for someone else you have set pay – unless you are commission, and even that has restraints when compared to a business owner.
Are you working your whole life so you can retire wealthy, or do you want to experience wealth along the way?
This is true financial freedom.
Despite its risk, I believe everyone should explore entrepreneurialism.
Even if it does not turn into a full-blown business, even a side hustle can help bolster your finances.
Or, you may find that it’s not for you, and as I said before, that is okay.
But for many, the freedom provided by owning a business may be the solution they are looking for.