It’s not what you make, but what you keep!
Out of all of the mistakes that new business owners make, the most important one it is always about finances. You may not know how to make a business plan, about business registrations and trademark issues, or even know that you need to market and advertise your business, and still have a successful business as many small and medium sized business have done through the ages. But if you don’t know how to manage your finances, you will quickly see your business fail, since the first rule of any business should be ROI ( Return On Investment ).
If you are not on business to make money, call it a hobby
And unless you are independently wealthy, the primary reason to be on business is to make money, and hopefully more money than you will make any other way. While many people may criticize the monetization of business, most of those criticizing this style don’t hesitate to extend their hand to ask for “handouts” from those other that have succeeded launching their own business. Many people forget that it has been proven empirically that pure science research, or pure artistic creativity will not survive without the direct and indirect sponsorship and funds from successful private enterprises.
Should you launch your own business?
That’s always one of the toughest questions to answer for each and every single prospective business owner, and the first one that they need to answer before they start investing any of their hard earned cash on their ideas and concepts. While there are many reasons to launch your own business (from being unhappy in your current job, to the enthusiasm of showing everybody your unique product or business solution), we need to understand that the business must be able to provide for itself and its employees (including you); at a better rate that you could get investing on the regular stock market.
Historical U.S. Market Returns 1993-2013
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When you look at the standard market we can see that there are some periods where the stock market provided recognized negative returns (most recently the 2007-2009 period), but that in the majority of the other cases the market provided a consistent return on investments. Just during the last 25 years the market has generated over 600% return on any original investment in 1993, and that’s something that you should keep in mind when thinking on investing your money in your own business (putting all your eggs in one basket).
Financially Should I invest in my own business?
While many advisors will talk to you about all of the rewards of having your own business, of being the boss, and about all the help that they can provide you to register your business, developing your business plan, creating your marketing and advertising plan, and even doing the billing and accounting for you; very few will actually help you determine if you should launch your own business.
From a financial standpoint the answer could be very simple. All you need to do is to complete the following calculation all in your own:
a) Current or Potential Amount of Money to Invest in Your Business:
b) Current or Potential Stock Market Return: (Last 100 years average is about 9.31%)
c) Current or Potential Salary that you may earn Working:
d) Current or Potential Business Income AFTER all Expenses Paid (but not your own salary):
Should you have your own business = d – [(a *(1+ b )) + c]
If you get a positive number, then financially you should invest in your own business. By the same reasoning, if you get a negative number you should not be investing your money into your own business. If you still need some help launching it feel free to visit our contact page and we will be happy to help you navigate the business challenges you may face.
Inloso offers strategic business consulting in Latin America and the U.S., in the areas of multinational strategic business development, multinational operations, and entrepreneurship. We have over 20 years of experience and can help you expand your business, improve your profits and customer satisfaction, and/or reduce your costs of operations. Please visit our contact page if you are interested in our assistance in any of these areas.
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- Historical Market Returns
- US Stock Market (Dow Jones)
- How to budget for startup success (theguardian.com)
- Investing: Control Your Risks (quicken.intuit.com)