All Businesses need Capital to be established (borrowed or from saving) and normally need time to build up to the “critical mass” point where they become self-sustaining and generate reliable and predictable income. All Businesses are time sensitive when building up and the shorter the time from start-up to critical mass, the less stress there is on finances. Borrowed capital incurs interest which is a kind of slow bleeding that can become a flood if not managed wisely. Failure to manage debts also affects future credit ratings and ability to borrow. Listen to an expert who learnt from hard experience.
“Building your own business from scratch remains the riskiest of all ways to become rich. The failure rate for new businesses is about 90 percent in the first five years—and if your new venture fails, guess who just lost $5 million? In my early years of starting businesses, I failed twice, and while it never pushed me into bankruptcy (and I never got any government bailouts!), it did cost me millions of dollars. Typically, when you start your own business, you have to make sure your rent, utilities, and the rest of your overhead are paid, your employees are paid, and your suppliers are paid, or you’re out of business. So guess who doesn’t get paid? You. In the course of starting a new business—and I’m talking here about a successful business—you can easily go five to ten years without taking a paycheck.” Robert Kiyosaki –(Author of best seller “Rich Dad, Poor Dad”).
Pros & Cons of buying an established business or starting your own:
| ESTABLISHED BUSINESS | NEW UP-START BUSINESS | ||
| PROS | CONS | PROS | CONS |
| ESTABLISHED BRANDING | UNKNOWN BRAND | ||
| ESTABLISHED MARKET PLACE | NO MARKET PLACE | ||
| ESTABLISHED GOODWILL | NO GOODWILL | ||
| ACCEPTABLE PRODUCTS | PRODUCTS UNTESTED | ||
| ESTABLISHED SUPPLY CHAIN | SUPPLY CHAIN UNCERTAIN | ||
| EXPERIENCED LOYAL STAFF | NEW STAFF UNFAMILIAR | ||
| CASHFLOW FROM DAY ONE | TIME LAG FOR CASHFLOW | ||
| NO DEBTS OR DEBTS KNOWN | UNFORSEEABLE DEBTS | ||
| ESTABLISHED SYSTEM TESTED OVER TIME | SYSTEM TO EVOLVE BY TRIAL AND ERROR | ||
| PAY 2 YEARS PROFIT TO OWN IT | NO NEED TO BUY | THERE IS IMMEASURABLE CAPITAL INVESTMENT | |
Actual Profit over 5 years
How does a new small start-up café business compare to an established business in terms of risk?
| ESTABLISHED CAFÉ BUSINESS | NEW START-UP CAFÉ BUSINESS | ||
| CAPITAL OUTLAY | $200K (2 X ANNUAL NET PROFITS) | CAPITAL OUTLAY | $150K |
| TOTAL PROFITS IN FIRST 5 YRS | $500K | TOTAL PROFITS | $300K (assuming it survives the first 5 years) |
| AFTER DEDUCTING INVESTMENT | $300K BALANCE | AFTER DEDUCTING INVESTMENT | $150K BALANCE |
| LONG TERM RISK | MINIMAL | LONG TERM RISK | CRITICAL |