Reduce Debt Increase Wealth

Starting a Business

September 18, 2022 MIsterchuck Season 3 Episode 131
Reduce Debt Increase Wealth
Starting a Business
Show Notes Transcript

Starting a business to build wealth sometimes works but has risk and many fail. The best way to get started in a business is to have a plan and be debt free in personal life. These are the things that need to be complete before starting a business.  Income is the only way to build wealth so having a losing business will not build wealth.

 Article Link:

https://www.businessnewsdaily.com/4686-how-to-start-a-business.html By Joshua Stowers

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Charles McDonald:

Hello, I'm your host, Mr. Chuck, I retired accountant turned truck driver, I reduce my debt in a relatively short period of time, debt reduction, to achieve financial freedom takes commitment, confidence, determination. Starting a business, starting a business to build wealth, sometimes work that has risks and many fail, the best way to get started in business is to have a plan and be debt free in personal life. These are things that need to be completed before starting a business. Income is the only way to build wealth. So having a losing business will not build wealth. From my experience of being an accountant, and I specialize in small businesses, I've found through the years that many people started a business because they had no option. Maybe they were unemployed or got laid off because the economy was bad. So they started their own business, many of them struggled, because they didn't have a plan in place before starting their business. They had no capital, they didn't have any money to finance their business, they were struggling. And if they did get a job or some business, many of them were unable to even buy the inventory without the customer pre paying them first. Now, you might guess a lot of these were construction related individuals, but there are retailers that did the same thing. And many didn't have any idea other than their primary business of what to do. Many of them didn't even keep receipts, they had kept no track of anything they did, they couldn't tell me what their sales were on the previous month or a couple of months ago, they had no business how much their inventory cost them, they had no idea of how much income they might have, or how much profit they might make. And they had no idea of if they were even pricing their inventory high enough to pay the rent and utilities and employees. So that's this precursor. So before you start a business, you must have a plan. And the first thing you need to do, if you're even thinking about starting your own business, is you have to have your personal life under control. Because if you're working full time now you and you're used to an income, when you start your own business, if you quit your job, your incomes gonna go to zero and might even go to negative because you could lose money the first six months or even the first year, how are you going to pay your personal bills. So you need to keep that in mind before you start your business. If you keep taking money out of the business to pay for your personal bills, where it's rent, food, clothing, travel, transportation, whatever, you're not going to have money left for the business, to capitalize it and to do what you need to get done. That's a major mistake that a lot of people make. So why you need to do in your personal life. While you should be tracking all your spending, he should be he should have a check register, he should have a savings register, he should have arrestor for every credit card that you're using. And you should know how much you're spending when you're spending it and why you're spending it. You need to keep track of your personal finances, you should set yourself up a budget so you have an idea of what you should be spending. And when you don't spend an E need to build up your emergency fund. And when you're starting a business, you need a bigger emergency fund because you may have to go three months or six months with zero income. So you need to have enough money set aside to pay for your personal bills. You got to take care of yourself first. And then we can look at the business. When you have a business. You should pay all your business expense first, and then take whatever you need to pay your personal expenses second, that way he won't get yourself into trouble. He can't sell something you don't have. And if your vendors, your suppliers, it's gonna require cash on delivery or pre pay for your inventory, he needs to have the money to do it. And you got to pay rent, if you have rent space. Granted, he can work out your home, you can get started that way, but sooner or later, you're gonna grow. And you're gonna need some type of space for the business. So if you take care of your personal life first, and you get in the habit of tracking all your spending, you get in the habit of having a budget of knowing what's due, when it's due, and how much is due on your personal life that should carry into your business life. Because for a business, it's fairly important to know how much you're spending, what your costs, how much is your sales, what's your gross sales, what's your profit margin, what other expenses do you have to figure out and pay for me for the bottom line, hopefully, would be a net income. Now many businesses could be seasonal. So that means you need a bigger emergency fund for the business to get you through the slow months. That way, when you're having the good months, you should be setting aside money to cover your expenses for the slow months when you may not have a profit when your sales are gonna be very low. But you still have the same expenses. I do have an article in my show notes, from business news daily.com, how to start a business, I have a link in my show notes. And it's got some good things to do when you're focusing on the business side of things. Remember, we need your personal life in order first, if you have a spouse, that spouse continue working at job, that's gonna be very helpful. But that spouse may not make enough money to give you to invest into that business. So he got to make sure you know how much money you need to get started, how much money you need to run their business for one month, two months, three months. And before you even get started. If you have that money set aside, and you can get set up and start it and get through the first three or four months, and then start relying on the sales or the profit from the business to pay for the business expenses, you're going to be much

Unknown:

better off. So here is from the article,

Charles McDonald:

starting a new business find out where to begin and how to achieve success. Well, first thing you got to do is refine your idea. What type of business are you planning on starting?

Unknown:

What is it exactly?

Charles McDonald:

And what is it different from what somebody else is doing? When you're thinking about starting a business, you're likely already have an idea of what you want to sell online, or at least the market you want to enter? Do a quick search for existing companies in your chosen industry. Learn what the current brand leaders are doing and figure out how you can do it better. If you think your business can deliver something other companies don't, or deliver the same thing only faster and cheaper. You got a good solid idea and you're ready to create a business plan. Define your why why are you starting a business? Why do you want to do it? What your goals consider franchise and another options to open a franchise of an established company that concept brand falling and business model are already in place. All you need is a good location the means to fund your operation. Course Morris franchising is expensive to get started. And of course you got to pay him a fee as you go based on your gross sales. To is to write a business plan once you had your ID in place you need yes or ask yourself a few important question. What is the purpose of your business? Who are you selling to? What are your end goods? How would you finance your startup costs? These questions could be answered and a well written business plan. Along with mistakes are made by new businesses rushing into things without pondering the aspects of the business. You need to find your target customer base who is Gonna buy your product or service? If you can't find the evidence that there's the demand for your idea, what would be the point? conduct market research. Market research helps you understand your target customer, their needs, preferences and behaviors as well as your industry and competitors. Many small business professionals recommend gathering demographic information and conducting a competitive analysts to better understand opportunities and limitations within your market. And this is what Bar Rescue does at Jon Taffer. guy. He goes and gets a demographic of the neighborhood around about five mile radius and find out what's the average income? What's the average age? How many? What's the volume of traffic going by that location. And he does all that and then he designs a bar based on that information. In then he's creating a need based on what people want, based on what he knows. Access your finances started, business has a price. So you need to determine how you're going to cover those costs. Do you have the means to fund your startup where you need to borrow money? If you're planning to leave your current job to focus on your business? Do you have money put away to support yourself until you can make a profit? The best to find out how much your startup costs will be. Perform a break even analysis. One way in determine how much money you need is to form a breakeven analysis. This is an essential element of financial planning to help business owners determine when their company products or service will be profitable. And it is fixed costs divided by average price, less variable costs equals breakeven point. So what is all that? Fixed costs is everything you pay every month no matter what average price is the average price of all the products you're going to sell. Variable costs are things that you pay, it goes up and down based on the volume of sales, mostly purchase of inventory, for example. But it may also be your utilities might go up. If you are open long hours versus shorter hours, you your electric bill might be higher or lower. If you do that, you get an idea how much money you need to make. Maybe you underpricing your products. I don't know. That's what you got to figure out. Watch your expenses. Don't buy things you don't need, don't over buy things you need. But don't overpay for him. Don't buy things that you that's more than what you need for that next six months or a year. What is your legal business structure where you're going to be a sole proprietor it means that you're a single owner, by yourself and with for taxes, you would file a Schedule C, or he got a partnership or you going in business with somebody else who's not your family, then you need a partnership. It's important to have a business partnership agreement, draw up, before you go into business that defines each partners responsibilities, what they're gonna do, and what they're gonna get. And, again, how to dissolve the partnership. At the beginning, he needs to define how you're going to break up the partnership, when there's a dispute. Maybe it won't last as long as you think, are you gonna incorporate you're gonna become a corporation. Are you gonna be an S corp or regular C Corp. Or a limited liability company, which is one of the most common structures for small business is the LLC, as a hybrid structures has legal protections of a corporation, while allowing the tax benefits of a partnership. Now, that's tax business benefits of a partnership. If there's more than one, partner or owner. If there's only one owner, then you would file a Schedule C even though you're an LLC, or limited liability company.

Unknown:

Are you gonna hire employees?

Charles McDonald:

Do you think you're gonna just give them a 1099 and get away with it? Well, probably will for a short period of time, but sooner or later, you're gonna have to set up payroll. So you need a employer's identification number or e i n. It usually starts with a three one dash. You fill that out online with the IRS, or if you create a partnership or a corporation, you need a EIN number also, for that it's like a social security number for a business and figure out what you need. to do, before you even get started, maybe you have a good idea, maybe you've written up part of your business plan, maybe you think you have enough finances, maybe you have a good idea where you can rent, you know the cost of rent, maybe even are thinking about signing a rental agreement. Before you do any of that, you need to have some professionals on your side. And attorney, an attorney would then talk to you and explain to you the differences of the different types of business entities, he will then draw up the paperwork so that your legal and file it was appropriate entities, he can review your contract for your lease agreement, and tell you and explain to you where it may be good or bad, maybe it's bad or around maybe he said I wouldn't lease from that person. And he'll be there to help you protect you from liability. If somebody Sue's you, you already have a relationship with an attorney. Also, the second thing you need is an accountant. And you should talk to the account before you get started. Because he will get help you set up your chart of accounts for your accounting system, oh, probably never thought of that dead. Yeah. And if you're a retail, they need a point of sale, maybe he has a good idea of which point of sale would be good for you. Based on your type of business, every business is different and have different needs, he can direct you maybe in the correct direction. Other than that, he can give you an idea of what you need to do to keep track of your expenses and your income he can and maybe he'll do you have an income statement and a balance sheet for you on a monthly or quarterly basis. And then you have a relationship with an accountant that will do your income taxes for you. And he knows about your business, and he can best do the returns and do everything for you as quickly as possible. And again, and the third professional would be an insurance agent. So that you can have insurance general liability insurance in case something would happen. And somebody Sue's you. So you have insurance to help pay for the bad things. And you have an attorney to help protect you from the bad things. And you have an accountant to let you know what's going on. So that as the professionals you need to do the work for you. I mean, these going to be outside contractors, an attorney and an accountant and an insurance agent, then you got to build your team who's gonna be there, if you have retail, or if you're going to be open, are you going to be there all the time, six, seven days a week, for 15 hours a day or whatever you're required to be open because these malls are required to be open. If you're in a mall, they are retail, you know, strip mall, wherever they're going to have requirements. So you might need somebody to work for you. And that's where the accountant helps you

Unknown:

set up a

Charles McDonald:

program to protect cash from being stolen, to help protect you procedures and things that you can do to keep track of your cash. I mean, you got to require that employees ring up every sale. And if they use a credit card or cash or whatever they need needs to be rung up and, and cash register during your point of sale. It's very important. So if you have a good point of sale as keeping track of your sales, but is also keeping track of your inventory, and you get an idea of when you go and do a physical inventory, meaning you go in your store, you count everything compared to your records. And if you have less than what your record says you should have walked out of the store by itself. So now you're going to look at ways to protect your store from shoplifting, or at least tried to reduce it. I hope he got the general idea of what needs to be done before you get started. Every business is different. So it's going to be up to you. A you got to choose your vendors, you got to choose your products, you got to get the best price that you can negotiate so that you can make the most profit as possible. Because if your business is losing money, you're not building wealth, and you're losing also and it's just a matter of time before you have to close. I'll be back in one moment with my final thoughts. If you want to contact me to request my spreadsheet for the budget, or leave a comment or ask a question. You can send it using my email reduce debt, increase well@gmail.com. reduce debt increased wealth is all together no spaces. If you like to ask a question, quick question in the subject, if you'd like to request my monthly budget, put a spreadsheet in the subject matter if you want to leave a response of any kind is put a comment in the subject manner, I will get back to you as soon as possible. Before you start any business, you should have your personal life or at least your personal finances under control. And you do that by tracking your check register, you have a check register, you have a check savings register, you have a roaster for every credit card, you're gonna use the build up your emergency fund, not only to help you and your personal life, but now you need to build up additional money for that business. Because you're not gonna go to the bank with $10 and say, I'm starting a business, I need to borrow $200,000, can I get a loan, you can have a great credit score, that no bank or no investor is gone to take 100% of the risk of your business, you need to have the money available to start paying for things. So if you start a business that's heavy and equipment costs, the Navy's should have bought some of that equipment over time, or at least been saving up some money to buy that equipment. So the once you start the business, you can buy the equipment and get set up and get going. It's gonna be difficult for you to borrow money at the beginning. And if you do is gonna be expensive, you're going to be paying high rates of interest, I don't care if the current interest rate is 3%. For a 30 year mortgage, you're going to be paying 15% for a business loan, it's gonna cost you and it's gonna be expensive, if you can get one. So you need to get your personal finances under control. If you have a spouse, the spouse needs to continue working, whatever they do with no, you no current plans of quitting, unless you do really well. But you won't know that for at least a year or maybe two years. Give yourself some time to get established in the business. Get to know vendors, pay your business expenses first, including your employees before you pay yourself. That's why having a spouse working a different job is gonna be really helpful in that particular case, circumstance. So you need to do your homework. Before you get started. You need to know why you're starting a business. How can you do it different than anybody else? How are you gonna do it better than anybody else was going to take to get started, how much money you need to get started? Who's your customers how you're going to advertise to your customer? How you going to target them? You know, you need to budget a significant amount of money at beginning for advertising. I didn't add I didn't talk about that earlier. But that's just more money you need to have up front. So do your homework. Have a plan and you'll be glad you did so