There are only 3 reasons to start a business.
And all 3 are necessary - you should not look at just one reason in isolation.
Here they are (in order of priority, please note):
1. Cash Immediately
You need a business which creates cash immediately.
Too many businesses involve massive initial and ongoing expenses and a “hope” for profits “sometime in the future”.
That hope all too often doesn’t materialize - for a variety of reasons - but it’s mostly down to a lack of training in the business venture.
A terrific new cafe / restaurant has opened across the road from me - it does good meals and good coffee.
But the fixtures and fittings cost them a fortune, the staff are all family and have never run a cafe before, nor have they done any training in the business (even working in someone else’s cafe as waiters and cooks for a few weeks for free would have been good for them!)
Their Dad is a good chef, but that means he’s in the kitchen 12 hours a day (longer if you include pre-opening preparation and post-closing cleaning down).
The high quality of the furnishings means they have to charge more than other similar places (lots of them within a small area) - rarely a good move in fast food.
I asked why they chose this particular site - they said that they’d seen that there were lots of other places to eat and drink within a small area … and that (apparently!) proved there was a demand - oh, and they’ve signed a 25-year lease on the premises.
2. Cash Flowing Each Month
Cash flow (or, rather, lack of it) kills more businesses than anything else.
You must have constant cash flowing through your business.
This is because you always have expenses - both for running the business and for expansion.
A seasonal business is very dangerous - I see far too many businesses that rely on, for example, Christmas and Valentine’s Day.
Yes, good money for about 3 months - but you still have all of the overheads for the extra 9 months, whilst using staff, space etc for only a quarter of the year.
“Sweat the assets” is a great phrase that I teach often - basically, if it’s not making you money, make it do so - or get rid of it.
It’s only an asset if it’s profitable.
Otherwise, it’s a liability.
And you don’t want any of them!
3. Future Cash
The 3rd thing you must have is the ability to
- either sell the business for a sizeable profit, or
- to expand it easily, without you working ever longer hours.
Selling a business is remarkably easy these days - there are entire websites dedicated to businesses of all sizes for sale - a quick sale can often occur.
This is great if, for example, a medical emergency arises - or even if you finally decide to travel the world.
Expansion can be easily achieved too.
Either appoint managers (preferably your best staff) with experience to open new branches, new countries and so on.
Or franchise the opportunity.
Or - and, to my mind, the best of all - teach others how to run the same business.
You can charge a hefty upfront fee for people to shadow you for a few weeks, you can supply them with copies of your business plan and your procedures, you can offer them 1 hour a month on the phone (for even more money, of course!).
How many small but successful family businesses do you know where the owner is bored / ill / approaching retirement - but are real experts in their niche?
They could instantly retire by teaching others how to replicate and emulate their business.
Ooh, and remember the cafe across the road that I mentioned?
They could train people, too, for a great profit.
They just need to teach prospective cafe owners what NOT to do ….
Lateral thinking is always an asset, yes?