Not too long ago I said that when investing in property, bigger is not necessarily better. But when we talk motorbikes and business, bigger is better. I am not going to say anymore on bikes.
So often I hear people say: “I just want a small business.” And I say to myself: “You just want trouble!” I will tell you why.
- One hour is 60 minutes, whether you get paid R100 or R1000. The only difference is, that if you have to work 7 days per week at R100 per hour, you will soon resent it. And there is not enough money to hire somebody to help you. Or put in other words: you don’t have enough money to buy some free time.
- A small business does not have the cashflow to pull you out of trouble. It is like this: You have a business with a net profit of R5 000 per month and you pay that to yourself as a salary (bad idea). But your personal expenses are R5 000 per month, so you don’t have a choice. Then the weather changes and suddenly your turnover is less and therefore the net profit. Or a piece of equipment breaks. Or you have to buy more stock for a huge special promotion. A small business just cannot carry the extra burden. But imagine a bigger business where you had a net profit of R5 000 after your salary, in other words, a real net profit. You can take a lot of bad things.
- A big business has a much bigger margin for error – turnover has to drop substantially before it affects the finances.
- A big business can handle variances much better.
- All in all, a small business is riskier than a big business. The same is true for motorbikes!
Now I can almost hear some of you saying: “But I can only afford so much!” Believe me. I have a lot of sympathy. But also believe me on this: if you buy a small business, it will eat all you have and then some more. And you will not even be able to afford anything else.
Property? Bigger is not better. Business? BIGGER is BETTER!