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.

1. Higher leverage for your wallet. You don’t need carry a pile of cash anywhere you go, with this amazing plastic card, you can make payment on the amount a few times the cash you could carry in your wallet. Of course, you should not use it on the amount you can’t clear off on before the deadline. Otherwise you will need to pay interest.
2. Spending visibility. Average people will say that there is less control on the amount of spending when using credit card, I beg the different. I will say using credit card on every spending you make massively increase your spending visibility! Usually credit card companies will provide an online portal for user to view their statement up to daily basis, while the least credit card companies provide is sending you the paper statement. With this statement updated on daily or monthly basis, it is much easier for us to monitor our own spending pattern.
3. Convenience Input Data for Budget Planning – You can use credit card statement as historical input for your future budget planning. Best thing is you don’t pay for credit card statements. Bank track it down and send it to you, when you are minding your own business. If you review the credit card statement up to 4 months back, you can observe the pattern or trend in your spending habit. Is it increasing or staying average? If it is increasing, which items causes the jump in spending. Then ask the questions: Is the surge of amount causes by one-time item? Is it avoidable in subsequent month?  List out and discount the one-time and avoidable items, then you can project how much you will spend in each subsequent month.
4. Credit Card as Cash Flow tool. Credit card provides a lot of flexibility in term of cash flow. Let say if you are a freelancer who get paid irregularly, credit card enable cash upfront for you to smooth out any urgent payments. Be sure you can make it in time for debt settlement before due. However, a little bit of interest can be unavoidable some times. One must know how to balance the cost of money with the urgency of usage. If the urgency far outweighs interest rate then paying the interest charge is still justifiable. For example: What to do if you are not able to pay the rental in two months time? The interest is probably ten dollars if you don’t pay in the first month, while you will probably get kicked out from the rental house if you don’t pay for 1 month.     
5. Get Rewarded for Mindful Spending. While you spend on things you need, you also earn points on the purchase you pay with credit card. Most of the credit card companies have such system. One example of redeemable items is cash voucher. It is probably not much, but the thing is, this is something extra you get back while you spend. If you pay off credit card debt every month, this reward is like interest the banks have to pay you back. You don’t get those things by spending cash. Of course, don’t spend credit card for the sake of collecting points otherwise you will be out of control.

Read How Not To Be Millionaire on how you will never get rich by misusing credit card.

Cash flow is recurrence income, usually every month, from an rental property either residential or commercial real estate. For a business owner, recurrence income is from the business they own. For an investor with huge capital at disposal usually hundreds of thousand to a million, they get income in the form of dividend from stocks they own. In nowaday information age, people earns recurring income by harnessing the power of Internet.

Most of the time when we invest in anything, we invest for capital gain, flipping – buy a pre-constructed property and sell it after completion with certain percentage of appreciation is capital gain. Stock market, buy low and sell high is capital gain. Mutual fund, unit trust, Amanah Saham, etc are all rewarded, ultimately, in capital gain.

So which one is better? cash flow or capital gain.

Ultimately if we want to retire early and retire young, we need cash flow. Why? – Simply because cash flow is automatic, it’s recurring every month without us actively working on it. If you own a few paid up rental properties, it will generate positive income every month for you to support your life and expenses.

However, in order for us to invest into a cash flow positive asset, we need huge capital, well lots of the time. That’s why we go for capital gain in the first place, through stock investment, flipping property, so on and so forth, until we have enough capital to invest in cash flow asset. However, saving enough money or invest in capital gain might be too slow sometimes, capital gain sometime might end up becoming capital loss. As Robert Kiyosaki put it, invest in something and hope that its’ price go up is a gamble. An investment have to make sense when the day you bought it, not 10 years after you bought it. Buying a stock at a fair price and hope the price will go up further is a gamble.

To raise capital in shorter time, this is when leverage comes into the picture - to purchase a property by borrowing money from the bank. It is very common nowaday for people to get a house loan with a 10 percent upfront, leveraged on the rest 90 percent. We can use the same leverage in acquiring cash flow positive asset or flip for capital gain if you know what you are doing. However bear in mind leverage is a double edge sword - if you don’t make a killing, you end up killing yourself. Typical example is owning a rental property that doesn’t make positive cash because the maintenance fee or mortgage interest is too high, in this case you need to fork out money in order to cover the negative cash flow, the cash from your wallet could deplete if negative cash flow recurs. That can’t go on for long, and you can’t afford to purchase another rental property. However a rental property that provide recurring positive cash, be it a small amount every month, you can keep doing it for a long time without eating into your own cash. Again, a deal have to make sense the day you bought the deal, not 5 or 10 years later, if a rental property can’t provide you positive cash, most likely it will be hard to turn around.

As a landlord myself, i know it is easier to say than done. There are a lot of problem in the name of renting property, for example difficulty in recovering rental from bad tenants, equally difficult to keep good tenants to maintain cash flow continuity, overwhelming processing work that consume your personal time, rental price go down because deteriorating surrounding environment which happen mostly to apartment building with bad management. But, no one says this will be easy. With some due diligent it’s not impossible.

In term of wealth building, there is a rule called 10-90 money rule; 10 percents of effort and 90 percents of rewards. It basically means if we are willing to sacrifice 10 percents of our life time in hardwork to build up businesses and cash flow, we would have 90 percents of your life time of financial freedom.