Are You a Good Investment? How to know if owning your own business is right for you.

Owning your own business is dream that beguiles millions.  We imagine the business owners life as a romantic one, your own boss, in charge of your destiny and with the potential for vast riches or total failure.  In business you don’t have to be athletic or beautiful are even unnaturally smart to succeed, the playing field- is relatively level.  Sure, there are long nights and the requirements of passion and self-discipline but those don’t seem that hard from a distance.  However, it is well known that as much as half of businesses fail in the first year, before they have even made it out of the starting blocks.  In some cases the business model was bad or the market wasn’t right and even experienced entrepreneurs will lay an occasional dud every now and then.

In my experience working with small businesses I have seen a lot of failures that never got on track and seen a few gems that have made their owners very wealthy and I have noticed a common thread in the success or failure of these businesses, whether the owner is a good investment or not.  You see, there are some people with incredible talent and intelligence that one would think would be smashing successes, but they fail.  Why?  Allow me to show by example.

At what price comes genius?
One of my best buddies is more than just a great chef, he is a real-deal culinary genius.  He has worked in restaurants from the extravagant to the mundane and in positions up to executive chef, he has an excellent work ethic, is fully credentialed and educated, and is a great person to work for and with.  Every tells him, “Dude, you’re awsome!  You should open you’re own restaurant!” Everyone, that is but me.  Because he would be an absolute failure as a business owner.  How do I know?  Because, in spite of working as a professional in the culinary field for years and making some pretty good money, he has about 0 net worth.  You see, geniuses like that don’t care about or have time for the money, they’re far too busy creating and experimenting and being creative to worry about mortgages, 401(k) plans, bills, and mundane crap like that.

What is your net worth?
Whenever someone I know tells me that they want to open their own business, which is fairly frequently and going more so by the day, I ask them “what is your net worth.”  Well, I don’t really, but I try to tactfully understand what type of economic resources they possess.  But here’s the kicker, its not the amount they possess that I care about, its the relative amount, relative to their income, that is.  I am far more impressed by the dishwasher just off the boat who has saved up enough money to bring her family up from Guatemala than I am by the lawyer with the $100,000 income but less than one years worth of savings.  Why, because that lawyer often has $105,000 of expenses and owes almost as much as he is worth.

Are you anal enough to own your own business?
Running even a small business can be a complicated task that demands many hours of labor on tasks unrelated to income production.  There are taxes to pay, regulations to comply with and bills, bills, bills coming out of the woodwork from all sides.  Employees and banks expect to be paid on time all the time or you can face legal trouble or hefty fines.  And God forbid you should ever stiff your rich Uncle Sam who can be more persuasive than the Corleone family when it comes to collections.  In my experience the businesses that last the longest and are most successful are run by people who sweat the small details even as they plan and build for the future.  If you are not this kind of person there are still 1,001 ways to be successful, but you may want to think twice before opening your own business.

How long would it take you to get the money you need?
Most people, when they want to start a business, immediately start by thinking about financing. Hey, its not like any of us have extra change burning a hole in our pockets!  But lets go back to my buddy the restaurant guy, because many entrepreneurs contemplate the restaurant/bar business?  According to restaurantowner.com (http://www.restaurantowner.com/public/811.cfm) its takes at least $150,000 and an average of $450,000 to start a restaurant.  So if it was your dream to own a restaurant, could you come up with $150,000?  Would you be willing to perhaps start a catering business on the side, tend bar or work nights at another restaurant while you both learn the ropes and put together some extra cash?  What about selling your house and downsizing to a small apartment, trading the Benz in for a used Oldsmobile, or selling your kidneys on the black market?  If you’re not willing to do one or all of these then I hope that you have rich relatives that love you dearly because that’s the only way you will ever open your own restaurant.  If you can’t at least put some of your own money down than forgeddaboutit, you don’t really want to be a business person

How do you respond to stress?
When I get stressed out I tend to develop insomnia, which stresses me out even more, which leads to more insomnia, and, you get the picture.  Sure, I soldier on, but it ain’t exactly fun and I’m probably not as effective as I should be, even after four espressos.  I have friends and family who refused to even look at their investment portfolios during the last stock market crash.  They couldn’t bear the pain of facing up to what they had lost, which is also a response to stress.  Starting a business is stressful, especially if you have the family farm riding on it.  The trouble is, no one really knows how they are going to respond to missed payments, irate customers, and the nail biting uncertainty of when the next paycheck will come in or when someone will sue you from not protecting them from their own stupidity.  Sometimes you wish for the old nine to five back.  If you know that you respond badly to stress, then my advice is to take it slow.  Start with a business that requires more sweat equity than actual capital, keep your day job, and, as you feel more comfortable, increase your investment from there.

Play to your strengths
Virtually every obstacle to being a business person is surmountable, except being bad with money.  Right now there are incredibly successful business owners out there who have less education than you do, lower I.Q. scores, physical disabilities, and come from more disadvantaged  backgrounds.  If you want to be an entrepreneur, do it!  But get your own finances in line first.  If you can’t even manage the money you have right now, how can you expect to take on even more responsibilities?