Starting a Business- Money Motivates

Starting a Business

A blog for businesses with 20 or fewer employees or for people planning on starting one. There are two threads. One for Starting a Business and a second for Growing a Business.  Author: Henry McCabe.

If you are reading this, you are probably thinking about hanging up a sign- Coming Soon- My New Business.   Starting one is a multi-step process. The first step is to make a realistic assessment of your readiness to do so.  The last three blogs suggested assessing: your knowledge base of business issues (2/8/14), your ability to finance the start and early years of the business (2/13/14), your willingness to tolerate the risk inherent in starting a business (2/21/14) and your motivations for starting one (2/28/14)

Assessing your readiness - Motivation- Dollars, Dollars, Dollars

The fifth question you should answer for yourself  concerns what should be your primary your motivation to start a business-  money!!!  have you really thought about what you might earn? A specific goal about how money you would like to the every year  from the business? Not immediately. Someday in the not too distant future. Say ten years from now when things are going swimmingly.  The goal needs to fit your lifestyle aspirations, but must be realistic.

With a specific goal in mind you can assess whether or not it is likely that the business will be capable of producing that amount. I wrote a eight  blogs on testing whether or not a personal income goal is achievable and expanding that into a strategic (10 year) plan for a business under the Growing a Business thread starting on 11/29/13. The same process can be used by those wanting to start one.  In fact that is the time to do it, not 3-5 years in when you find yourself disappointed with the dollar flow.

Those blogs used as an example a person (fictitious) who was running a retail shop selling women's clothing. She needed to re-assess her situation based on a goal of earning  $75,000 a year from the business  someday.  Where do goals like that come from? Should  you just pluck one out of the air and hope for the best? Or is there a fact based way to pick an one which you can test using the process described in the eight blogs. Yes there is. First, you need to understand that a small business owner's income is actually made up of three component parts. Remember that I am writing about long term owners of businesses employing fewer than  20 employees. Things are different for those who expect to grow rapidly, have multiple shareholders, go public or be acquired.

The parts are: worker, manager and investor. Most small business owners spend a lot of their working hours doing the work of the business. Especially in the early years. In my pretend retail store the owner is there five or six days a week stocking shelves and serving customers alongside her one employee. In that role she is a retail clerk.  The minimum she  should expect to earn from the business is the wage of a retail clerk which in my state was $24,400 according to the
US Bureau of Labor Statistics May 2012 survey for Standard Occupational Classification 41-2030. Our fictitious owner could set as a minimum goal 20% above median or $30,000 a year. Otherwise she might as well take a job working as a retail clerk in somebody else's business and save herself a lot of headaches.

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She also manages the business.  A small business person has to do many things.  Here is a list of the 2012 median annual wages for some of the roles she might fill at any given moment of the day:  General Manager (11-1021) $111,110; Marketing Manager ( 11-2021) $114,120; Advertising Manager (11-2011) $97,540; Merchandising Manager (11-3061) $109,280; Procurement  Manager (11-3061) $109,280 and Financial Manager (11-3031) $124,080. Since the survey includes businesses of all sizes it is reasonable to assume that the wage for a manager in a small business would be below the median, so our fictitious owner could set as a maximum goal 80% of the average of the medians for those occupation, or $$88,500.

Our owner is also an investor in her business. If you go back and look at the business survival curve, you will realize that her investment is a risky one. She is entitled to an annual return of at least 15% on the $50,000 she invested to get the store going. That is $7,500 a year. Adding that to the wages her goals might have been: minimum $37,500 and maximum $96,000. She set as a goal earning $75,000 per year within ten years. Realistic and achievable.  But, she should set as an intermediate goal earning $37,500 within 3-5 years. If she cannot meet that, she should close up shop and try something else.

The point of all of this is that people starting a business should be motivated by money and should have a realistic goal about what they might earn from the business. If what is possible does not match your aspirations, consider another plan. You are not ready for the current one.