Many retailers aspire to a certain standard of living; a large house, prestige car and expensive holidays being part of the lifestyle. This may be their image of a wealthy businessman but in most cases this can only be achieved after many years of hard work and several successful businesses (and a few failures) behind you. Here are a few mistakes made by many would be entrepreneurs:
1. I need a new BMW, Mercedes, Lexus, (even a Ferrari or Bentley for the more ambitious…). It’s only a few hundred a month and it all comes off the business. Two problems here:
a. The business may not have a few hundred a month profit to spend.
b. Not all the costs are business related. If you cover 12,000 miles a year driving to various golf clubs and only 1,000 for the business then the cost to the business is only a twelfth of the running costs.
2. All the money in the bank belongs to me! Well I am afraid this isn’t true either, most of it will belong to your creditors and in the case of commercial property rentals, which are often paid quarterly or six monthly in advance, you will need to have the cash available for the next payment or you won’t have a business. (Oh, and don’t forget you need to pay the tax man as well).
3. I can buy a new TV, DVD recorder, washing machine etc. on the business. You can providing that when the tax inspector visits all the equipment is used for the business and hasn’t mysteriously found its way into your living room. Do you really spend all night watching the close circuit TV from the shop and washing your employees’ work clothes?
4. I can let a manager at the shop do all the work, pay him just above minimum wage and I’ll make a fortune while I play golf. This is always a good one to try until you find out that your trusted manager is:
a. Eating, smoking and drinking your stock.
b. Taking cash out of the till.
c. Letting their friends and family have large discounts and/or eat, smoke and drink your stock etc without paying…
Didn’t you ever wonder how they paid for the flashy sports car and foreign holidays out of the amount you paid?
5. Keep taking a monthly “wage” which is far higher than the profit being made by the business. You know your business is a goldmine and there is plenty of profit to pay for the mortgage, pony lessons, football club season ticket and all those other essentials you need as a successful businessman.
If you had only looked regularly at your accounts you would have realised that the business wasn’t making quite as much money as you thought and there would have been no need for all the unpleasantness with the car being repossessed outside your child’s school gate.
And finally the good news…
If you do work hard, minimise costs, look after your staff, and keep a close eye on the accounts, there is a very good chance you will have a successful business and can eventually buy that Ferrari. There’s a very good reason most sports car owners are over fifty, and it’s not just the insurance premium.