This was my entrepreneur’s checklist when over a decade ago I wanted to set up the best business for me.
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- A huge market with a product or service that was always in demand
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- A business that could operate without meand allow meto takeholidays
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- Low upfront investment
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- Home based or low rent
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- Low equipment costs
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- Low employment costs and staff management
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- Compounding contractual income
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- Fully systemized, with proven methods for sales and operations
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- Low stock and inventory management
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- Opportunity to make high ticket sales
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- Low overheads
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- High average profits without multiple locations
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- Recurring, residual or subscription-based income
And lastly a business that could allow me to have a multi-million-dollar business without a single employee.I wanted a business that gave me TIME, MONEY & FREEDOM. I went looking for one and I couldn’t find one.
So, I made one-Urban Clean.
The Goal of Business Ownership
Ask yourself, “what is it that I want to get out of a business.”
The real reason to get into business is not to do what a business does, whether that be accounting, landscaping, preparing food, making coffees or cleaning. What matters is what a business gets you and the impact you make doing it.
When I conduct workshops and ask groups what they want out of owning a business their list normally includes:
– Freedom
– More time
– Flexibility
– Control
– Being in charge of their future and destiny
– Being their own boss
– More money
– Spending more time with their family
– Not missing out on their kids’ childhood
– Having time and money to pursue their passions and hobbies – Making a difference
– Not pinching pennies
Did you notice this list doesn’t mention doing more of what a business does to make money? It doesn’t matter what a business does if it lets you do more of what matters to you, whether that be spending time with family, leaving a legacy, donating to charity, or living your dream lifestyle.
Once you’re clear on what you want out of a business, it’s going to be easier to choose or design the right business for you.
Clarity is power.
I wanted to build a business that would give me more time, more money, more freedom. It had to be a business that could work without me.
And owning a business is without doubt one of the surest ways of creating wealth and time flexibility.
Of the 2755 billionaires listed on the Forbes Rich List, over 71% of them are self-made and 93% of their wealth had been created from business.
Business ownership is not risk free. There are plenty of mistakes you can make when starting and buying a business. I see people making five key mistakes when starting out and choosing a business for themselves.
Mistake #1: Thinking you must own a business in an industry you’re passionate about or have experience in.
This might be a strange one to mention considering how often you see inspirational quotes telling you to follow your passion. A survey conducted by CB Insights showed that the three biggest causes of 92% start-up failures were due to running out of funds, offering a service or product that nobody wants and having a poor business model. Only 5% of start-ups failed because they got burnt out or lost passion for the business.
Again, what industry you’re in, and what the business does is much less important than getting the results you want out of the business. And you’re only going to get those results by understanding market fundamentals and having a business model that will deliver you the lifestyle you want.
Mistake #2: When assessing opportunities, not understanding how breakeven relates to business risk.
A business reaches breakeven when sales cover costs. Not all costs are the same. There are what are called fixed costs and variable costs. Fixed costs are costs you have no matter what sales you make. They are things such as rent, vehicles, employees, rates, internet, phone and software. Variable costs only happen when a sale is made. Sometimes variable costs are called costs of goods sold or COGS. When you make a sale, the revenue you receive minus your variable cost to sell that item is what’s called your gross profit or contribution margin. The most important financial numbers in a business are fixed costs and contribution margin. The smaller your fixed costs are and the higher your contribution margin, the less risk and the more profitable a business is going to be.
Mistake #3: Not recognizing the importance of recurring revenue.
Having recurring revenue is the reverse of fixed costs. Fixed costs are costs you know you have whether you make sales or not. Recurring revenue is cash flow and profits you know you have regardless of whether you make a sale or not.
Recurring revenue is even better when it’s contractual and customers are happy to sign multiyear contracts.
What’s even better than recurring revenue is compounding revenue. This happens when you can add recurring revenue clients without reaching market saturation or operational capacity. I’ll talk about this in more detail in a later chapter on commercial cleaning contracts.
Mistake #4: Thinking you’ve got to get into an industry that doesn’t have a lot of competition.
Competition is a sign that there’s a market for what you’ve got. Shark feeding frenzies happen where there are many fish.
Competition can have a negative impact on prices but only if you don’t differentiate your service from others and or have any unique point of difference.
Competition is even better when the industry is huge and fragmented with no single player taking more than 20% market share. This means there is plenty of opportunity for everyone, especially local business operators.
Mistake #5: Thinking you’ve got to work it out on your own.
As entrepreneurs we like to do things all on our own. We have a ‘can-do’ attitude. And this gets us far. Sometimes it slows us down. Do you really want to repeat someone else’s ten years of trial and error, mistakes and dead ends, just so you can say you did it all yourself?
Successful people model other people’s success. If someone’s already done it, there’s no need to reinvent the wheel.
I’ve invested hundreds of thousands of dollars learning from others and at the start of my journey I was actively looking for a franchise because I saw no point reinventing a system if someone had already created it.
PRO TIPS
5 things in a business to look out for:
Marketability – Does the business sell something everybody already wants and needs?
Market Size – Is the market huge or small? 1% of a multibillion-dollar market is better than 20% of a one-million- dollar market.
Recurring Revenue Model – Do customers have to keep buying what you’ve got, and will they sign contracts to buy your product or service?
Employment Market – Do you have to get a highly skilled and specialized workforce or can most people with the right training and attitude do the work?
Lifestyle – Will the business achieve your personal and lifestyle goals?
*Extracted from Damien Boehm’s book: Clean Up With Franchising.
