Ever want to know if you have wat it takes to be a business owner? Here is how to take the “Can You Be a Business Owner Quiz” to find out. Simply run a profit and loss statement on yourself to get the answer.
A profit and loss statement simply records all the moneys in, all the moneys out, and finds the difference. If the difference is positive, you have profit, if it is negative, you have a loss. For an individual this should be a rather quick calculation. So, where did you land? Is the business of you profitable or is it losing money?
This is how you will likely do if you decide you want to start a business. You see, you are your first business and the sale of your time is your first product. Your customer is your employer and the value you add is the service you provide. Soak that in for a bit. If you can wrap your head around this, then you are beginning to understand the true nature of a free market economy.
Don’t get me wrong, being an employee is a great thing and a wonderful solution for most people. As an employee there are great benefits. Often the flexibility, insurance, time off, risk exposure, and pay create a great stack of perks to attract good talent. That talent however would be prudent to understand the game they are playing and ultimately why their employer is giving them money.
How Is Money Made?
Money is simply a universally agreed upon currency provided in exchange for a good or service. What makes it so convenient is that its worth is agreed upon. Yes its value changes over time, and yes it changes differently relative to any number of indices but by and large people know what they can get for 5 dollars, 10 dollars, or 1,000 dollars.
People generate money by virtue of adding value to others. This value is likely a service. One of my fist paying gigs was the hourly rate I received for doing work around the house above my normal chores. When my parents wanted to paint the house, I was paid $10.00 and hour to do the job. My job was to hit all the hard-to-reach areas such as the areas above the roof line that required a person to step on the shingles. My value: being smaller than my parents and able to complete the job without ripping shingles off the roof.
Think about the money you spend in a given day and ask yourself why you have to pay for the things you buy. Why not simply acquire, make, or do the things needed to get you what you want? Is it because you want something fast? Something of a higher quality? Something you don’t know how to make? Whatever the reason you find the value of what you are buying to be commensurate to the amount you are willing to pay.
How is Money Lost?
This seems like a silly question, but you would be surprised to find that many business failures occur, and the owners are not quite sure where/why they couldn’t stay afloat. The sales were good, their customers loved them, and they had plans to open another shop. The problem is expenses were growing faster than the profits. This happens when people don’t keep an eye on their full situation. As revenue grows so do expenses. If a business owner doesn’t keep an eye on the money going out the door, they will soon find they don’t have a door for money to go out of. At a personal level this is where the beauty of budget begins to shine.
I make great money so why am I living paycheck to paycheck?
Well, by the time you factor out rent, fuel, subscriptions, Ten-dollar coffees, entertainment, credit card payments, and whatever else you role your eyes at, you will find you spent all that you earned.
So, how is money lost? Answer: it was spent.
How Companies Grow And Compete
This principle holds true with companies. A business that wants to grow must find a way to create value and offer it at a price that is greater than the cost to produce it. A baker has his equipment, raw materials, and time invested into making his bread. A fisherman has his equipment, fuel, and time invested in catching his fish. A restaurant has its building, food, and employees to pay for in order to provide a dining experience. In each of these the only way for these business owners to keep their business going and growing is to sell their product/service for more than their expenses. How much more? The answer to this is however much their market will endure.
Competing in a market means that multiple people are fighting for given number of potential buyers. The market size and behaviors will drive how competitors work to win sales. Some markets are very price conscience, others are quality conscience, and others still time conscience. For more on this check out our write up: The Competitive Advantage Spectrum.
Smaller businesses and employees will find themselves competing with services. A job that is done well (quality), quickly (Lead time), and at a fair price (cost) will win clientele over every time. If this can be done at a profit you have yourself a winner. If multiple service providers are in a field, you will see that the big players compete in different fields. If you want something fast go with company A, if you want it cheap go with company B, and if you want the best quality go with company C.
How Are You Competing?
What is it that you bring to the table every day that your fellow employees do not? Is it a good attitude, domain knowledge, timeliness, problem solving, or do you fail to see any difference? If you are reading this, I know that last one isn’t true. Driven smart people make great employees and are not only hard to find they are hard to keep.
Back to the original question, how do you know if you can be a business owner? You know if you understand what it takes to be a good employee. Once you understand this the next question to ask is: do you want to be a business owner?
Running a Company Is Not For Everyone
Getting a business started is easy, keeping one going and growing is difficult. Its hard because what makes a company successful in the long run is not what is needed to get one off the ground. This is why we see such a high failure rate among small businesses. One of the biggest challenges habitually discussed among small business owners is attracting and keeping good employees. If you don’t like or have trouble with dealing with people, be very careful with which direction you decide to go.
There are many types of businesses out there and don’t get caught up in believing there is simply business owners and non-business owners. For some a brick-and-mortar store may not be an appropriate path and going the Solopreneurs / micropreneur route is the way to go.
Micropreneurs and Solopreneurs
Micropreneurs and Solopreneurs are relatively new terms used to define the individuals that run ultra-lean companies. Often consisting of only themselves and perhaps a temporary hired hand or two these people likely run an internet-based company. Blogger, Vloggers, and Affiliate Marketers can often be put into this group. They stay in this group if they decide not to grow beyond themselves. What makes them unique is the amount of revenue they can create without the use of other people. We plan to explore these shyentrepreneurs in later articles so stay tuned.
Wherever you are on your income journey be sure to check out The Four Stages Of Wealth Creation; From Clueless To Capitalist. We put this together as a guide for those looking to grow their financial acumen and take their next step towards financial independence.