Things To Know Before Starting a Business

If you have read Robert Kiyosaki’s Cash Flow Quadrants, you should be familiar with the four quadrants of cash flow; The E-S-B-I as in Employee, Self employed, Business owner and Investor. Robert Kiyosaki mentions that the person resides in each of these quadrants are very different in term of how their income is generated. Employee earns money by working for other people, when they stop working, they stop receiving income. Self-employed individual earns money by working for themselves, be their own boss, even though they may own a company, but fundamentally they are quite similar to the employee, this is because when they stop working, they stop receiving income. In another word, self employed person actually owns a job. A real business owner on the hand can earn incomes regardless whether or not he is actively involve in daily operation of the business. Investor earns their income through their investment portfolio, such as property rental income, stock dividend, income from businesses which they own larger part of the share, etc.

For investor to have a portfolio large enough to generate income that is enough to sustain their desired life, the investment amount is significant, probably a few millions dollar in shares and few rental properties. It is quite impossible for any starters to generate a decent income from investment given the high investment capital. Similarly, it also takes a very long time for an employee to save enough money to invest for decent cash flow generating source. Ultimately anyone who wants to become rich and financially free thought to become self-employed and subsequently the business owner.

There are many things we need to know before becoming self-employed or/then business owner:

1. What motivate you to become self employed or business owner? Do you have a strong reason to sustain your objective? If you want to become your own boss simply because you don’t like your current boss, then your motivation is probably not huge enough, you may simply look for a new job instead of risking into starting business only to realize you don’t have what it takes to endure the hardship. However, if you believe that working will never fulfill your financial goal for the lifetime in compare to having a business, then starting a business is worth to think about. Some great entrepreneur in our life time started their business believe that certain things can be done better. With a strong reason, no matter how hard the process is we believe there are some thing to live up and fight for.

2. What would you like to get into? One reason people got out from security of employment is probably they have already found the dream job, which is owning the kind of business and work they want to do. So what would i want to do? is the question you should be asking yourself. What do you feel passionate of doing? We must love and have passion in what we do only we will work very hard to achieve it. Avoid getting into hot business, this is because the future income might not be sustainable and it could subside after the demand disappears.

3. Mental readiness. By venturing into the business arena means we must forfeit the steady paycheck that comes in every month, on time. We need to be ready to work much more harder, even harder when we work for others, to build up the business. Besides, we also need to make sure the people around us is mentally ready, such as family members and partner. We must be mentally ready if things don’t go our way, for example: instead of being bog down by stress of bankruptcy we need to be ready to change for survival.

4. Personal Financial readiness. To start a business does not mean you can simply resign from your job and jump. It is the best if the one who starts their own business have at least half to 1 year worth of life saving ready in case the business does not generate any cash to sustain life. If the business is not as good as we expected, be ready to further cut our living expenses. To find out your financial readiness, multiply your monthly expenses with 12 (months). Expenses include food, accommodation, transports, debt commitments, family obligations , etc.

5. Business capital. To start any business one needs to come out with some up front capital, depends on the kind of business you are in, the amount of capital differs. If your business require some expensive machinery in order to operate then it is capital extensive, but if you are only providing certain service in term of expertise, knowledge or skill then the capital might be low. Do not confused business capital with your own living fund, we do not want any yet-to-perform business eating into our life support budget. As a would be business owner, it is our responsibility to find out how much capital is required to start up the business, such as to acquire the machinery, office furniture, computer, furniture, rental, etc. To come out with business capital, one can look for bank loan. If you have a great idea or product, it is a good idea to look for venture capital. In term of bank loan, it will be better if the debt level is as low as possible, unless you have absolute confident in your business capability.

6. Business life support, also known as free cash flow after initial business capital injection. Similar to your living budget, the business require a separate fund to sustain itself in case it cannot generate enough cash to fund the operation, especially a start up business. Business life support is consider to be equally or more important than the start up capital. If you have capital to start up the company but do not have enough fund to live through the second month, then the business is as good as bankrupt. However, having enough cushion of life support, even though business doesn’t perform as expected for the first few months, the owner can still do some thing to turn it around. As would be business owner, it is our responsibility to find out how much is the operating cost each month. To have a sustainable business upon start up, we must have at least 4 to 10 months worth of cash available. To find out the total amount required to sustain the business for 10 months without any income = company operating expense per month x 10. When borrowing money from bank or looking for venture capital, we should already have this figure in mind in total with start up capital.

7. The paper work – registration of company. To do business legally in Malaysia, we need to register it under Companies Commission of Malaysia (aka SSM – Suruhanjaya Syarikat Malaysia). There are several type of company such as, sole proprietorship, partnership, private limited, etc. Sole proprietorship is for any lone ranger starting up a business. If you have a few business partners start a business, partnership might be suitable. Depend on what kind of business you are in, the criteria of choosing a company type can be very different. For example, the owner of sole proprietorship or partnership have liability of all the debts owes to the debtors, while for private limited company, only the company itself  liable to the debtor. The tax policy applies differently to each of the business type as well. Before anyone can start registering for a business, he must first come out with company name and the name must comply with defined standard guideline that bounded by some limitation and prohibition. To find out the name is not used currently, he must do a name check with SSM. He can proceed to business registration when the company name is approved. For more information, check out the SSM website.

8. Deciding on location of business. Location is very important for a business, but depending on the type of business you are in, the definition of good location varies. For consumer related business, the high flow of people around the place is important. The best location for any consumer related business is in shopping complexes because that is where lots of people go and spend their money, however also because of high traffic, the rental and utility bills are much higher as well. That’s why before one decides on location of business, he also need to consider the estimated/targeted income per month. He has to ensure the potential income is enough to cover the real estate expenses, otherwise it will eat into the business life support (mentioned above) which will exhaust the business life subsequently.

Watch out for competitions when choosing the location, if your business offers not much differentiation then it might be a good idea to look for other well populated area with low competition, this way you get the proximity advantage to the  potential customers. On the other hand if you have a niche business, it might be a better idea to open the business right in the middle of your competition, as the area  has already being known by customer to sell/provide certain product/service, and some thing new will attract their attention quickly. For example; the concentration of all IT stores in Lowyat Plaza, hip fashion clothing stores in Sungei Wang and restaurants at The Street of The Curve shopping mall.

In fact, during the registration of company, the form requires the applicant to fill up company address and contact details. So location of business should have already been decided at registration of business or both can be done concurrently if possible.

At this point, consider yourself overcoming the first and one of the biggest hurdle, by quitting jobs and starting a business. While starting up a business is not difficult but running and growing it is challenging. So the next step for anyone to do is to consistently work hard to build up the business, be ready to face more challenges and in face of turbulence, have a clear mind and be creative.