I started my firm on a leap of faith six years ago. Knowing nothing about running a business when I began, I learned plenty of lessons along the way. I hope my been-there-done-that advice is helpful when you start your own venture.
Growing up, I had no aspiration of being a business owner. I majored in finance in college because my dad thought I should and I kind of liked numbers. After graduation, I entered the financial services industry, working in a brokerage firm, cold calling people to get clients.
What got me thinking about starting my own company was Robert Kiyosaki’s entrepreneurship book, “Rich Dad, Poor Dad.” I realized that, even though my income potential was unlimited, I was still an employee.
Then, my brokerage firm was bought out, creating one of those moments that almost forces one to change direction, and that’s what I did. I, along with three of my co-workers, started our own financial services firm. I was finally self-employed.
But actually running a business was something that no one ever taught me in school. It was definitely very exciting but also very scary. I’m proud to say that so far things have worked out since I made that daring move. Here are five lessons I learned through the process.
1. YOU WEAR A LOT OF HATS
Being a startup founder means playing many different roles that you don’t concern yourself with when you’re on someone else’s payroll. You need to learn the skills involved in various tasks to make your business work.
For example, let’s say that you’re a plumber, and a great one at that — but what do you know about marketing your business, pricing your services, ordering equipment and managing employees?
When I started the business, I had to find a suitable place to rent, and choose and buy office equipment at affordable prices. I had to learn to market the business, hire staff and train them. And I had to do all of these while not compromising the service the existing clients received.
2. FRUGALITY IS A VIRTUE
Businesses fail for a lack of positive cash flow more than anything else. You can give yourself a big, fat advantage by cutting down your overhead.
All stuff costs money, and when you start a new business, money is something in short supply. This means you have to think shoestring — finding less expensive ways to do everything and letting go things you don’t absolutely need.
For example, a streaming stock quote system, which my old firm used, cost $300 per month. But I can find the exact same information on Yahoo Finance for free. Needless to say, I didn’t sign up for the system.
3. PUT THINGS DOWN IN WRITING
Anytime you start a business, even if you’re a sole proprietor, you are involved in all kinds of loose and informal partnerships. A bad relationship has the potential to sabotage your business. So choose wisely and sign formal agreements.
My colleagues and I went into our business as a partnership, and that always presents special challenges. I know them from our former brokerage firm. These weren’t necessarily people I would hang out with after work, but all were individuals I felt I could trust and be comfortable with on a professional level. We agreed on how to run a partnership in advance and committed our agreement to writing.
Partnerships don’t always work out, so you have to have written procedures on how to run the business, how to settle disputes, and if necessary, how to handle the departure of a partner. The same applies to your relationships with suppliers, vendors, contractors or even clients.
4. FOCUS ON WHAT BRINGS IN THE CASH
The biggest key to running virtually any business successfully is your ability to concentrate on the activities that bring in the most money.
This is particularly important for startups. Building cash flow has to be your top priority. That means you have to minimize the time spent on routine functions. You need to identify repetitious tasks from the very beginning, and streamline them immediately to maximize efficiency.
Personally, I hate doing paperwork and administrative tasks, so I created a workflow that made them as simple as possible. Some of the functions include accepting client checks, making bank deposits, opening new accounts and conducting annual reviews with existing clients.
5. MAKE SURE YOU HAVE SOME PAYING CUSTOMERS FIRST
This may be the single best piece of advice I can give. If you already have a client base, at least half of your business risk is gone.
I get dozens of emails from financial advisors across the country who want to start their own practice. What they might not realize is that I was in the business for five years before I decided to go out on my own. Could I have accomplished it sooner? Perhaps, but having an established client base was huge.
Before you actually start a business, you might want to test it and treat it more like a sideline. Keep your day job, and see if your business idea has roots. Test it out with your network. Find out if you actually have something that people are going to pay for continuously.
ABOUT THE WRITER: Jeff Rose is the founder of Alliance Wealth Management in Carbondale, Ill., and also is the founder of the website Good Financial Cents and Life Insurance by Jeff.
He writes for AdviceIQ, which delivers personal finance articles by both financial advisors and AdviceIQ editors.