Money 101: Getting down to business
If I was to do a spot poll and ask a hundred odd people whether they wanted to work for themselves or someone else, 95 per cent would choose being their own boss over job security and the luxury of forgetting about work when the clock strikes 6pm.
But for every person who dreams of owning a quaint bookshop, a café by the sea or any other small scale business there are 10 others who will never get around to starting it up. Small businesses are the backbone of any economic system, often owned and managed by families, they continue to provide personalised service in a niche market.
So this week I will talk about the good, the bad and the risky side of being an entrepreneur !
Believe in your idea
First of all believe in your idea because if you don’t, no one else will - this includes family, friends and most importantly investors. Having said that, you must also be realistic about its potential to work and sustain itself.
Of course life has no guarantees. You may get a job with Goldman Sachs and get laid off two months later - a product that the whole world thinks is failure proof could flop. So, before committing your money or time talk to people. Pan out a definite idea and do extensive market research to ensure that you are not jumping into anything head first. For example vintage clothing stores are the rage abroad but Syma, after investing over Rs2 million in her shop, realised that Pakistanis are averse to second hand clothing. The “who knows who wore it or what disease they had” mentality prevails till date.
Do the maths
Then do it again. As an an entrepreneur, one of the difficult lessons that I have learnt over the course of the last three years is that unexpected costs creep up and you need to budget for them both in your start up fund and your monthly expenses. Take raw material for example. Pakistan relies heavily on imports and prices go up all the time without any warning bells. So keep at least six months of running costs in hand when budgeting for your initial costs and your take home minimum profit for the first two years. You also need to allocate monthly funds to put back in the business, for maintenance and repairs along with the million of other things that will crop up.
Do allot yourself a monthly salary because a mistake most first time entrepreneurs make is to keep withdrawing cash from daily sales or your company account to pay for your personal expenses. So take home 10-50 per cent of your profit and let the rest be reinvested.
When should you break even?
Most small businesses should be in a position to pay back their investment within the first three years; their break even should occur within 12 months. Chances are that it will not make you phenomenally rich but it will pay back and there is something extremely satisfying about creating something that you can mold.
|My own business success story|
We did not have much of this wisdom when we started Ensemble three and a half years ago. There were months initially when my partners and I wondered why we were doing this. My fresh out of college sister would at times complain that working in a multinational would have paid her twice as much.
But here is a thought: working as an investment banker I would moan about pulling in all nighters working on financial models, while as Ensemble’s CFO I happily think, talk, live my work 24/7 without feeling the fatigue or burnout because I know that it is my very own to manage and take to the next level.
Accounts and legalities
A word of caution, whether you are flying solo or with a partner, make sure that you hire a decent lawyer who will draw up relevant documentation to ensure that you are not liable for any wrong doing. It is usually advisable to create a company and have it registered with your local body to avoid taking the entire liability onto your personal assets. Also take on a cautious accountant who will take manage your tax requirements, go over your books periodically and ask for explanations for every Rs100hundred spent.
Don't be afraid to ask
As a first time entrepreneur you will need to rely on friends you have not met for the past ten years, coerce family members to lend you whatever they can afford and pray for angelic investors. But bear in mind that there are many local and international companies who are willing to sponsor a good idea, so depending on your industry do search for them online and as I have mentioned before talk to people, talk to entrepreneurs and try to get assistance. I have noticed that we love mentoring, as a nation it is something culturally embedded into us so hear out different perspectives and you never know when which nugget of information will be worth gold!
Market your trade on Facebook, SMS and email contacts will begin because advertisements and billboards especially in big cities cost a lot. So word of mouth publicity is great as is the Tupperware model whereby you offer incentives to people who bring in clients!
Do invest in a BlackBerry, a good laptop with a solid internet connection and start your dream project.
And since I do like to play fairy godmother if you have an idea, email us and we will try to match it with an investor!