Starting Your Own Business: Part 4

When you begin your business, you must practice the “Two times, three times rule.” This rule says that, no matter how conservative your financial projections, everything will cost you twice as much as you have budgeted for and everything you do will take three times as long.

For example, if you think that it will cost you $1,000 to develop a product and bring it to the market, it will invariably cost $2,000 or more. Some start-ups go over by a factor of 10 times. If you think that it will take you three months to break even once you have started, you should triple that number and reckon that it will take you at least nine months. I’ve worked with companies that have taken three years instead of three months.

The most important single ingredient to any small business is cash. Cash is king. Cash is critical. Cash is everything. You must become an absolute fanatic about conserving cash. You must postpone, delay, defer and abandon every conceivable expense that you can dream of. You must not spend a single penny on anything that you cannot turn around quickly back into cash.

When I started my first new business many years ago, I went out and bought furniture, office fixtures, a large photo copier and invested thousands of dollars in printing. Within 90 days, I had burned through all my savings and there were still no sales. I went so broke so fast I could hardly believe it. In no time, I was selling off my possessions, taking out a new loan on my car, and borrowing money from my friends and relatives. I almost went under because I did not realize how important it was to conserve cash at the outset.

Whenever a bank or anyone else looks at your business, the very first and most important number that they will turn to will be the amount of cash you have on hand. Cash is like blood or oxygen to the brain. If you have it, you can survive. If you run out of it for any period of time, you will die; the enterprise will fail, no matter how good its prospects may be for the future.

Never buy when you can rent, borrow or lease. Never buy anything new if you can get it used. Postpone all major purchase decisions for at least 30 days and then reevaluate them again. Most major decisions postponed for 30 days are never made at all. Never buy large quantities of stationery or promotional materials. Buy only the amount of materials that you absolutely need at the moment to conduct the business in the present. Forget all the economies of mass production and saving where you can get better prices by ordering large amounts.

When you start your own small business, you will be presented with a thousand different ways to waste money and a thousand different people encouraging you to spend your money on things that are not helpful to you. You must become as careful and as crafty as a fox.

When you start your new business, the most valuable assets you have are your energy, imagination, character and discipline. It is your ability to get in there and do the work and get the results. It is your ability to make the key decisions and to get out there face to face with the customers and make the sales. It is the ability to follow through on your commitments and promises.

Ralph Waldo Emerson once wrote that, “A great institution is the length and shadow of a single man.”

Well, even a small organization or company is the length and shadow of a single person. You are the business. The business is you. The business can never be more or less, better or worse than you are, on an hour by hour, minute by minute basis. The business is really a mirror image reflection of your character and ability. Your business tells you and the world who you really are.

According to the studies by the major accounting firms, investigating the finances and fortunes of many tens of thousands of businesses over the years, the statistics are consistent and usually unavoidable.

It takes about two years after a business starts up for the business to break even. During that two year period, the business will suffer mostly losses that will have to be made up from the energy and resources of the entrepreneur. In the second two years, the business will make a profit and most of those profits will go into paying back the bills and debts that were incurred in the first two years. After four years, the business will start to break into the clear and the entrepreneur will start to make some good money. It is only after the seventh year of entrepreneurship that the business starts to be really successful and the entrepreneur begins to enjoy the good life that is possible for a highly paid person in America. And remember, most of the highest paid people in America are entrepreneurs who have passed the seven year point in building and running their own businesses.

Of course, it is possible to beat the odds. But beating the odds in entrepreneurship is very similar to miracles. It is not that miracles don’t happen. It is just that you cannot depend upon them.

 

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About Brian Tracy — Brian is recognized as the top sales training and personal success authority in the world today. He has authored more than 60 books and has produced more than 500 audio and video learning programs on sales, management, business success and personal development, including worldwide bestseller The Psychology of Achievement. Brian's goal is to help you achieve your personal and business goals faster and easier than you ever imagined. You can follow him on Google+, Twitter, Facebook, Pinterest, Linkedin and Youtube.

  • http://myhomeaccentsolutions.com James Borycens

    Brian,
    Thanks for the great advice. I had a sucessful company that I sold about 4 years ago and it took years to build it. I made many mistakes by not preserving cash flow.

    Now that I have started another similar company, I have been applying your advice about renting and leasing equipment vs buying which is preserving my cash. It is a much better tax advantage as well!

    Thanks Again!

  • Thanks

    Brian, I’d just like to thank you for your tremendously beneficial work. I was in a very serious procrastination rut where I couldn’t even get myself to work for 5 minutes.

    After listening to some of your tapes I’ve literally been absorbed in my work. Both yesterday and today I’ve worked for 8 hours, compared to only having worked 1 hour in the whole of last month! And I expect to continue the same rate.

    Thanks once again.

  • http://igniteyouressence.com Justin Popovic

    I wish I read this article 3 years ago. I was very careless with cash conservation when I first launched my business. I spent money very unwisely. Now that I have more experienced I can safely say that I am very good at cash conservation and only spend when I full understand the expense and the ROI. I still make bad buying decisions but nowhere near as often as I used to. With the internet you can get so much of what you need for free that it is hard to justify spending unless there is a hard good you absolutely must purchase. Great advice again!

  • http://ianpaulmarshall.com Ian Paul Marshall

    I’ve never heard the “Two times, three times rule.” but man does it ring true.

    I remember years ago when I started my first web design company I wish I had been given this advice then.

    Would have saved me a lot of undue stress.

    Thanks Brian!

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