December 1, 2004
Knowing When It’s Time
Q: I’ve been running a business on the side and I think it might be time to become a full-time entrepreneur, but I’m worried about not having the steady paycheck. How can I be sure that my business will generate the kind of steady income I need if I devote myself to it full time?
–T. Williams Via the Internet
A: There are a few ways to tackle this, but the tried-and-true test is to have a business plan that would be acceptable to a lender.
There are many things lenders look for in a business plan, but much of it boils down to sustainable comparative/competitive advantage. What is your niche in the market that allows you to get business over all other competitors? That has to be the core of the business plan. Even though it sounds basic, it’s often overlooked by entrepreneurs.
Also, don’t forget to make a budget and err on the side of caution. Calculate operating expenses for the first six to 12 months, keeping in mind that your revenues may not exceed these expenses. This will help you with your break-even analysis and help you determine what you need to do to become cash-flow positive.
In short, if the business plan is solid enough for a lending institution to trust you with its money, there’s a chance that the business may be a sustainable enterprise. And while there’s no guarantee that your business will take off, at least it won’t fail due to improper preparations and a faulty business plan.