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by Holly Johnson
March 27, 2018
by Holly Johnson
March 27, 2018
For many people who are inherently entrepreneurial, starting a business is the ultimate dream. With their own business plan in the works, they could escape the 9-5 rat race, work on their own terms, and work hard for themselves instead of working to build wealth for someone else. Without a boss, aspiring business owners would also be free to take a chance on their ideas and do everything their way for once.
And, forget about working for a salary or hourly wage; when you own your own business, you can theoretically make as much money as you want.
With all those potential upsides, it's no wonder people willingly give up workplace perks like a 401(k) match and employer-sponsored health insurance. If you had the potential to earn an unlimited salary and work for yourself, why wouldn't you take it?
Yes, people who start their own business use these reasons and others to justify their decision. Unfortunately, the idea of running your own business is often much different than the reality.
While you may have freedom, your new role as boss may come with a lot of junk you don't want – things like longer hours, risk, and financial hardship.
This could be the reason only half of small businesses and start-ups survive five years and only a third exist beyond 10 years, according to the Small Business Administration. Starting your own business may seem like the ultimate way to earn more money while also taking control of your life, but it can be difficult to make it work in the long run.
Perhaps that's because people focus too much on the upsides of starting a business without honing in on the nitty-gritty details. At some point, those daydreams collide with reality, and the results aren't always pretty.
For this reason, we spoke to a handful of business owners to find out what nobody ever tells you about running a business. What do most entrepreneurs wish they had known before they started their own business? Also, what do they think other people should know before they strike out on their own? Here's what they said.
The advice to "follow your passion" or "do what you love" is repeated all the time within entrepreneurial circles, but it's not realistic to assume your business will never require you to take on other roles. Steven Fox, the founder of Next Gen Financial Planning in San Diego, says this is one lesson he had to learn the hard way.
"I'm a financial planner running an independent firm, and I drastically underestimated the time that I would spend on tasks such as bookkeeping, compliance, marketing, business planning, setting up software tools to use, networking, fixing broken printers, and many other tasks that go along with running a business," says Fox.
You can outsource some of these tasks, and you should, he says. But outsourcing costs money you may not have at first. When you initially start your business, you may wind up spending a ton of time on administrative work you don't want to do. The sooner you accept this, the better off you'll be.
Author and investor Joseph Hogue of My Work from Home Money says he wishes people knew they would have to reinvest some of their profits back into their business. If they did, they could plan for upcoming expenses and adjust their income expectations accordingly.
"Everyone wants to pull out all the profit in their business and enjoy the fruits of their labor, but nobody tells you that a big part of your future success is reinvesting in your business."
Hogue says he reinvests about 20% of his profits back into his business year-round, usually to hire freelancers or to cover other growth projects. This ongoing investment lowers his take-home pay, but he believes it will help him earn more money in the long run.
The bottom line: The old saying that "you have to spend money to make money" is certainly true at times, and new business owners would be wise to consider how spending some cash could help their business grow.
Jim Wang, the blogger behind Wallet Hacks, says it can be difficult to get realistic feedback on your idea from people you know. Your friends and family will tell you that your idea is great and that they'll support you and buy whatever you're selling, he says. Some actually will, but most are simply being polite.
"You won't ever get honest feedback from most of your friends, so don't use that input as a measure of whether or not a particular venture is a good one," says Wang. "And don't be offended when you do start and your friends and family don't come to buy. Just remember they're your friends first and not future customers."
Instead of relying on your own network, look for other ways to test your business idea. Options to consider include cold calling potential clients, trying to sell your product, or hiring a market research company.
A lot of people who start a new business envision themselves kicking back and working less. They'll just hire people to do the grunt work, they say. And once it's all set up, they'll be free to do what they want while keeping an eye on their business from a distance.
Unfortunately, this is rarely the reality – especially at first. If you're starting a business from scratch, you will need to work hard to succeed. It's not as simple as opening a business, hiring your first employee, and watching the money roll in.
"You will need to out-hustle the competition, be flexible, and adapt to what your target client or customer is telling you that they want," says Ryan Inman, host of the Financial Residency podcast and fee-only financial planner for physicians at Physician Wealth Services.
Entrepreneurs are the only people in the world who will work 70-hour weeks just to escape the normal 9-5 slog. If you can't handle those hours – especially at first – it's likely you won't make it.
CPA and wealth expert Belinda Rosenblum of Own Your Money says that, even with a business degree and 15 years in corporate accounting and finance, she was grossly unprepared for the challenges of running her own business. One of those challenges was the belief that she could set up her business and the money would come on its own.
Over time, Rosenblum says she realized that, if she wanted to eat, she had to get used to asking for cash.
"You have to literally ask for every dollar you bring in," she says, whether that means cold pitching new clients, requesting clients pay their invoices, or raising your rates.
Obviously, this is a lot different than having a traditional 9-5 job where, outside of asking for a raise or negotiating a salary once in a while, you receive regular paychecks without having to badger anyone for the money.
Entrepreneurship is full of ups and downs, and success is never a straight line. You might feel like everything is going great one day and awful the next, and those bumps can be too much for certain personality types to take.
However, personal finance influencer Michelle Jackson says that, in her experience, the most frustrating and depressing moments are the ones that set the stage for incredible success. Even the small "wins" can make a big difference in your entrepreneurial experience, she says, provided you have the tenacity to make it through the hard times.
Unfortunately, when it comes to hardship, a lot of people just can't hang. They watch their business have a few bad weeks or months in a row and believe their dreams are no longer worth pursuing. But this is where having a realistic view of hardship can go a long way. If you're able to see your low points as part of the process, you'll have a much better chance at success.
Financial coach for physicians Dr. Jenn MD says that one of the hardest facts she had to come to grips with as a new business owner was the fact that there is no road map. She could have taken her business in a ton of different directions, but she was the one who had to choose.
In a lot of ways, building your own business can make you feel like you're "winging it" all the time. Her advice? "Plan to be uncomfortable while you find your way," she says.
With no road map, you may also find that everything takes twice as long and costs three times as much, says Paul Vasey, the entrepreneur behind Cash Crunch Games.
So, you can plan all you want, and you should, but you may not know where your business is going until, suddenly, you're there. It can be uncomfortable to create a business plan and follow it while also tinkering with the details as you go, but it's just part of the process.
Just because someone's story sounds like an overnight success doesn't mean it is, says Kayla Sloan, a self-employed virtual assistant and the founder of $10K VA. Sloan says she read tons of success stories as she built her business, but she ultimately felt that few people talk about their struggles.
Success stories usually "glaze over the blood, sweat, and tears of what it really takes to be successful," says Sloan.
People see the freedom you have and they may see proof of your financial reward, but they have no idea of the kind of work entrepreneurship requires. And just because some people make entrepreneurship look easy doesn't mean it is. The vast majority of the time, successful people have put in a ton of time and effort to get where they are.
Last but not least, too many people think they have to quit their jobs and risk everything to follow their dreams. According to Chenell Tull of Hustle to Startup, this couldn't be further from the truth.
If you can, Tull says, you should start your business as a side hustle while you still have a day job. This way, you can make sure your business idea is a good one and start building a reliable income stream as you go.
"Get it running to where you can safely save enough money for eight months of expenses and have a decent income from the business before you go all in," says Tull. "Yes, having a side hustle and a day job means you will have to work long hours, and it will be a lot of work."
Once you have a proven business idea that's also profitable, you can scale back at your 9-5 or quit altogether. In the worst-case scenario, you'll find your business idea doesn't work and you need to stay in your job longer than you want – but at least you'll still have income coming in. On the flip side, however, this strategy could help you earn money in your spare time while you continue building a business that will replace your entire income one day.
Starting your own business isn't all puppies and cupcakes. Being your own boss does have it perks, but you often pay for those perks with longer hours, more responsibility, and a whole lot of stress.
But, the spoils go to those who work hard and, most importantly, never give up. So, if you want to start your own business, you should create a feasible business plan and stick with it no matter what.
Holly Johnson is an award-winning personal finance writer and the author of Zero Down Your Debt. Johnson shares her obsession with frugality, budgeting, and travel at ClubThrifty.com.