Thursday, October 16, 2014

The true reality of starting a business

We see lots of successful businessman and woman and could probably name a few right now in our minds. But, here's the deal. Starting a business can make you lots of money but it can also cause you lots of troubles if not managed properly. So how do we balance between making money and not losing everything? Here are a few factors to consider before starting a business.

1. Risk is a must in business but don't risk everything

Everyone starts a business with a great idea. Or maybe you thought it was a great idea but who cares? How well your idea or product will sell in the market will never be known until the day you really sell it out. On this basis alone, it'll probably be wise not to put in your money saved for your kids education for a business, not to put in money saved for your marriage for a business and not to put in your whole retirement fund into the business.

Bankruptcy is your worse enemy in business. If you risk a bankruptcy, the next time you want to borrow any loans for a business will be almost impossible. No investors would want to work with you as well. Take risk but don't risk everything.

2. Be realistic about your profits, know your profit margins

Numbers tell you a great story about the future. Everyone wants to make big money in a business but you should calculate and work out the numbers in order to know its future growth story. Take for instance you create a product at a cost of $10 and sell it for $15. Your profit will be $5 which is a 33.33% profit margin. If you sell 1000 sets of this product, your revenue will be $15,000 and your net profit will be $5000. Think about it now, if you did not calculate the numbers, you probably would have thought that selling 1000 sets is a great achievement but in actual fact, you only earn $5000 from this sales. Let's bump it up a little. Selling 10,000 sets now will make you $50,000 now. That's still not a lot of money isn't it? Having said that, it is important to do your market research to roughly know how your product will sell in the market. But, always remember to be realistic. Estimating a 10,000 sets sale when the actual sale could only be 1000, would be a disaster.

Profit margins are important. If you can create a low cost product and sell it at a high price, you get to earn a lot of money. But make sure the price you set for your product is realistic as well. You do not want to set a price so high that you only get to sell 100 sets of that product in the end.

3. You got to work really hard

Having a business makes you a boss. But it doesn't mean you don't ahve to wkr hard like how you did before when you were an employee of another company. In fact, the truth is, you got to work even harder. A 100 times harder. As a start-up, you have to make the necessary sales, create the product, manufacture the product, makes phone calls, do the administrative work, manage the money etc. You have to do almost everything. If you're not prepared to work hard, chances are your business will not succeed. It takes more than just a good idea to make a business successful . Execution is the more important key to a successful business.

To work hard for a long long time, you've got to have passion for the business. Ask yourself why do you want to start that business? Is it just to make money or there's a higher purpose to it? IF your answer is just to make money, you won't be able to last a long time. Money may be a motivation at first but the effect wears out after awhile. Find a higher purpose for that business to make an impact for the world and make it a better place.

4. Start small, grow bigger

Never bite off more than you can chew. Most people start off envisioning that their business would become a world renowned brand like Facebook, Apple or Instagram. While that is a good vision to have, it's always good to start small. Putting in $100,000 of your whole savings in a business without knowing how well your product or service will sell is too risky. Instead, you can consider putting in $10,000 first, manufacture some prototype of that product and test out how well the market receives your product. Make the sales, get the orders and then start off in that momentum. You don't want to end up already manufacturing all those products and leave it in your storeroom.

Enjoyed my articles? 
or follow me on my Facebook page and get notified about new posts.

Related Posts:
1. The tale of 2 brothers starting a business
2. How to pick stocks (Part 2) - The profitability of a business
3. Taking risks without killing yourself


  1. Starting a business has so many risks in the beginning, and many times in the middle part. It's only when the business starts to take off, can we reap the rewards. But it's a definite risk. Informative post though!

    1. Hi TI,

      Its hard work. But with passion, it'll be worthwhile.

  2. Yes no risk no gain although most businesses fail. We study hard to be doctors, lawyers or accountants or take up scholarships to be generals, senior management in stat boards and maybe even a full time political career (notice many full time MPs). Failing which, nothing to lose, dive head in to take risks and start a business. Just read Oxley boss paid 18M in 2014 and he was a former police officer who probably knew he would never be the Police Commissioner.

    1. Hi,

      I would think that don't start a business unless you really have a passion for it. Its pointless to do it for excessive amounts of money. Having a good career will make us enough money to have a fairly luxurious lifestyle without having to risk it in business.

    2. I resonate with sgyi on this , biz is different from commerce , biz has a personal element in it. A biz isn't complete without the human touch , or at least that is my two cents nia lar :)