My friend Sparky called last night. “I'm thinking of starting my own business,” he said. “I need some advice.”
I wondered why he wanted my advice until I realized that:
- I help run a million-dollar-plus family business;
- For the past six years I've operated a small computer consulting firm on the side; and
- I've often mentioned how I treat Get Rich Slowly as being similar to a business venture (in mindsest, not in application).
Sparky's proposed bike-fitting business seems very much like my computer consulting business; they're more similar than different. We spent an hour discussing best practices and the entrepreneurial leap of faith.
“What made you decide to do this?” I asked.
“It's crazy,” Sparky said, “I was biking to work the other day and it hit me. I recognized I had a passion for something and I couldn't deny it. I love bikes. I want to help people find the right bike. I'd be good at it. Then I got to thinking about that CD you made for your 31st birthday. Back then, you said it represented your entrance to adulthood. We're 37 now, and I don't feel like an adult.”
I agreed. “I still feel like I'm seventeen,” I said. I told him about my own Eureka! moment, the spark of inspiration for this blog. “I was soaking in the bath reading Loral Langemeier's The Millionaire Maker when something in the book hit me like a ton of bricks. I realized I had a passion for personal finance and wanted to share it. I put the book down, got out of the tub, didn't even towel off, and sat down naked at the computer to draw up plans for Get Rich Slowly.”
Sparky laughed. “Too much information,” he said. “But yeah, this was was like that. I had a flash and knew that I could do it. That I should do it.” His voice was edgy. He was nervous. He was bursting with enthusiasm, with excitement, and with trepidation. That's awesome. It's a great combination for a new entrepreneur to have — you want to be eager, but you also want to be a little scared.
“So what advice can you offer me?” he asked.
“Well, first of all, you need to know that I'm no business expert. All I can do is give you anecdotes based on my experience. Some of what I tell you might be wrong. You're going to need to consult an accountant.
“To my mind, the most important thing you can do at the start is to keep your business accounts and personal accounts separate. Open a checking account specifically for the business. Deposit $100 or $500 or $1000, whatever you think you'll need. Document everything that enters and leaves that account. Keep files. Don't intermingle business and personal funds.”
“Why is this important?” asked Sparky.
“It accomplishes a number of things. It helps you know the status of your business, and it covers your ass in case something goes wrong. It also helps your tax preparer. Most of all, it makes the IRS happy. They don't want to see you mixing funds. They want to know if your business is making money or losing it. Your business needs to make money in three out of five years to even be considered a business and not a hobby.
“On a related note, as much as possible, don't incur debt. Some businesses have to. If you were opening a bookstore, you'd probably have to go into debt to stock your inventory. But for your bike-fitting business, you shouldn't have many up-front expenses. You already have excellent personal finance skills, and those should stand you in good stead here. My box company, which has hundreds of thousands in inventory, is completely debt free, though it wasn't at the start.”
“What about training?” asked Sparky.
“Training is an exception,” I said. “Be willing to spend for training. Buy the books and manuals you need. Take classes. If you can avoid debt, do it, but be willing to view training as a necessary business expense, much like paying for college in the Real World.”
“I hope to borrow some of the books I need,” said Sparky. “I want to keep my expenses down.”
“That's a great attitude,” I said. “This is the kind of business you can start on the side and slowly grow into. You're not planning to quit your current job, are you?”
“Not at all,” he said.
“Excellent. Don't quit your day job. For a business like yours, or like my computer consulting gig, it's best to begin by working evenings and weekends. This allows you to get a feel for it, to discover if you truly want to pursue it full time. In my case, I discovered that although the money was five times what I make at the box factory, I really didn't want to work with computers the rest of my life.”
“Right,” Sparky said. “But at the same time, I'm prepared to quit if my business is successful. If I can make $X a month at bike-fitting, that's a sign I can make it on my own, and I'll do it.”
“Your advice is great so far,” said Sparky. “Looking back, what are three things you'd do differently if you started over today?”
“Three things, huh? Well, first, I'd be confident. People come to me for computer help because they don't know the answers. And they'll come to you for bike fittings because they don't know how to figure this out themselves. They're lost. They want us to guide them. They don't want to think that we're lost, too. Even if you don't know where you are, act like you do. When you start out, there will be times that you feel overwhelmed. You'll feel like you're drowning. Don't let your clients see this. Remain calm. They don't know you're scared. If you're really in over your head, break off the meeting and set up a time to get back together. Research that which was giving you trouble. You'll get it.”
Sparky interrupted. “That reminds me. How should I price my services at the start?”
“Well, that's another thing I'd do differently,” I said. “When I started my computer consulting business, I made myself available dirt cheap. I charged $25 an hour. I hated it. I absolutely loathed it. I wasn't making enough to keep me happy, and the customers who didn't know me suspected they were getting somebody who didn't know what he was doing. Charge the going rate, or something close to it. If a bike fitting normally costs $150, don't do one for $75. Charge $125 at a minimum. You may feel like you're taking advantage of people, but they won't. They expect to be charged that much. And you can deal with any pricing complaints on a case-by-case basis.”
“Right,” said Sparky. “That's what I'd already decided with one of my mentors.”
“Yeah. I know a couple of guys who do bike-fittings in other cities, and I bought one of them lunch the other day. He let me pick his brain.”
“Great move,” I said. “That's a the third thing I'd do differently. Use your contacts. Networking is an important tool.”
Sparky laughed. “Networking is often treated as a joke,” he said.
“It's not a joke,” I said.
“I know,” he said. “I see that now.”
I told him that I have a good friend who is an accountant. One of my oldest friends is a lawyer. Professionals like these are good friends to have. Moreover, my network of family and friends was my best source for new computer jobs when I was starting out. “Networking isn't about superficiality,” I said. “It's about cultivating friendships and acquaintanceships. It's like in The Godfather: you do something for me, I do something for you. Most people like to help.”
“I've started doing this a little,” said Sparky. “I know a guy who owns a bike shop, and he's going to let me rent space in it for cheap. And I called you didn't I?”
“I'm so emotionally charged by this,” Sparky told me. “But at the same time I'm scared.”
“Exactly,” I said. “That's how you know you're on the right path. You're stupid if you're not scared. You're even stupider if you're not excited. That's the entrepreneurial mentality.”
Author: J.D. Roth
In 2006, J.D. founded Get Rich Slowly to document his quest to get out of debt. Over time, he learned how to save and how to invest. Today, he's managed to reach early retirement! He wants to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you reach your goals.