The Blue Roof

Rules for creating wealth. Start a business.

 We have seen that starting a business is a good way to create wealth. Not only do you create extra cash flow, you also create an asset that you can sell. Starting a business could cost very little and then selling a successful business can give you a very good return.

 But starting a business is not without danger. That is why I suggest you start it part-time – use your salary as a safety net.

 Some people like to sow, others like to tend the crop and harvest. The same way there are people who like to start a business, but is not interested in tending and growing it. I think it is important to know where you fit in.

 When you decide to start a business, I think it is important that you start something in a field that you know and are passionate about. If you are passionate about something, it just happens and you enjoy it. The money is secondary. Once again it is a bad example, but I quite often ask myself about blogging. Why do I do it? I don’t make money from it. Yet, I am always thinking about topics to write about. I am passionate about financial freedom and helping people achieve it!

 For a business to succeed, you need 3 skills: technical knowledge (know your product), sales skills (without sales the best product is worthless) and admin skills (you need to control). Learn to sell – it is something that you can learn. And selling itself is a business! You can always sell somebody else’s product! How difficult can it be to get a contract with a wine-farm to sell their wine on a commission basis? Especially if you are some what a wine fundi. But even if you are not, you can still sell the wine! Selling skills are, in my opinion, the most important business skill to develop. There are more than enough products out there.

 Lastly, beware of “big corporate thinking.” I have often experienced how people in top corporate positions think they will walk out and just start a business, and often, with their contacts, they do it successfully. Unfortunately, starting a new small business is totally different! Very seldom, if ever, do you have the big corporate resources to help you. When you start a small business (hopefully growing it to a big corporate), you do not have the finances and relationships with banks and big shareholders (you are the big shareholder!) and you do not have a staff of specialists. You are very much chief, cook and bottle washer! Nothing wrong with that – it can be very exciting and something to tell your grandchildren! But when you step down from a top position at a big corporate, please keep it in mind.

 Lastly, never put something that works at risk to try something new. That means: don’t put your financial security at risk in an effort to start something new that may or may not work. Be very careful before you burn your bridges!

Yesterday I said “start a business to create wealth” and I shared at least one of my concerns about starting a business.

The question is: why is STARTING a business such a wonderful way to create wealth? The answer is (drum roll, please): because you create something from nothing!

 Obviously, if you have a successful business, you will also have more money to invest and buy more assets. Wealth is determined by assets, not income! And all of us can do with more income.

 But a good business is also an asset! Consider this: you read this, it makes sense and you decide that you want to give it a try. And you start thinking about the type of business you can start (more about that in a next post).

 You start a business selling widgets. And best of all, you don’t have to spend a single cent to get started. The business grows and the profit increases. I am not going to put a figure to the profit, but consider this: as a rule of thumb, or as a working hypothesis, a business sells for about 2 times net profit. Imagine STARTING a successful business, making money and selling it for 2 times net profit! That is creating wealth big time.

 But remember this, you cannot invest the money you make from selling to give you the same income! That is why I am always sceptical when people SELL a business. And why you must think carefully before you sell your business. And that is why there is a saying: let the buyer beware (caveat emptor).

 But there are valid reasons for selling – people simply get tired of what they are doing. Or you get to the limit where you can take the business. Or you want to start a totally new business.

 Just imagine what you could do in terms of investing with an extra R2 000 per month. What about R10 000 per month? And there are people who do better than that with part-time business!

 Next time we look at types of business and the skills needed.