Harrison Ford took the money he was paid for “American Graffiti” and bought a fixer upper and the tools for repairing it. When he was done fixing up his home and the acting jobs did not materialize, which they didn't until "Star Wars", he decided to use those tools he owned outright to earn a living as a carpenter. He was smart.
I know of another person who quit a good job to start a business in the contracting field. Every time he got a customer, he bought a tool if it was needed instead of renting one. When another customer didn't arrive for that tool's use, he now had a new payment on a tool he couldn't meet. He also had no money in the bank for his capitalist dream, for he had used his life savings for start up capital. Bankruptcy followed.
The point? There's a right way to start a business and a wrong way. There's a time to start a business and a time not to do so. So here's some advice for those considering making this life changing decision.
First, an idea has three waves. The innovator who thinks it up is in the first wave and gets rich, like the first house flipper. In the second wave a person who studies coming trends and catches what the innovator is doing gets rich too, whether it's by also flipping houses for example or working in a parallel aspect of the job that our innovator, like most successful people who may know real estate but not real-estate law, can’t do.
If you heard about it on the evening news and rush out to do it, you go straight to bankruptcy court. The trend is done. You are the third wave. Therefore, know your strengths and ground a business on the real before you embark on it, not the here today and gone tomorrow.
Second, know how you want to set up a business. Making your business a corporation, for instance, protects you and your wife legally from the business' problems in many ways. Also know that corporations pay a higher tax rate. A business set up as a regular 1020 filer, however, has lower taxes and fees, but more personal liability. Talking to an expert may be practical here.
In dealing with liability, insurance on you and your business is important. If you cannot afford to insure your business, you are operating on too little money to begin with and are in trouble before you have your first customer.
This is where being realistic is so important. If you have a good job in construction with benefits, leaving a good job to start a business on a dream with no money in the bank is fool hardy.
Now, good business people save money to have money. Are you a saver? If you can’t save employed to someone else, how will you be disciplined enough to operate a business? And the broke people who say that they just can't save always seem to have an extra 5 bucks for a pack of smokes.
Finally, know your area. A hail storm can wipe out a low end roofing businesses overnight as fly by night roofers working for hail storm chasers do every roof in an area for 50 miles around, even the ones due for shingles on their own merits. But there may be plenty of work afterwards for good high end roofers to repair badly built roofs done by the storm chasers.
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Jeffrey Ruzicka is a retired executive of a small company that specializes in industrial water treatment. He lives happily with his wife in Western Pennsylvania and is a contributing writer to FinancialJobBank, FinancialJobBankBlog, ConstructionJobForce, ConstructionJobForceBlog andNexxt.