Small Business Investing
Small business investing is the American Dream for some people. To start a business and become their own boss and do things the way they want them done.
As a previous small business owner I must caution everybody who is considering starting their own business. It can be the biggest financial mistake many people will make in their lives. The truth of the matter is that most new small businesses fail within the first year.
WHY IS THIS YOU ASK?
In my humble opinion, it comes down to not being realistic about how much a business costs to start, and then maintain both in time and money. Do you know that even leasing a small strip mall store will run you between $3,000 to $5,000 a month in rent! Then you have all your utilities, insurance, supplies, and maintenance expenses to name a few.
So my point is that it is very expensive to start a business from scratch. I do not mean to seem like a downer, but I am a realist not an optimist.
If the above information does not scare you; then I offer these 2 important tips if you do choose to take the risk of starting your own business:
- Have an attorney look over any lease you sign. Leases are negotiable and the first draft usually favors the owner leasing the property. You will find many property owners will ask you to sign a 3-5 year lease minimum. This should be what scares you the most about starting a small business. As I stated above, most small businesses fail within the first year. Which means you may be stuck with a 3-5 year lease, you are obligated to pay, which you may not be able to get out of without filing for bankruptcy. So my advice is to get a lawyer to work a clause into your lease that allows you to walk away after a year if you can not meet certain financial goals. Otherwise, it could cost you a lot of money.
- Many small business owners think if they make their business an S-Corporation that their personal finances are protected if their business fails. WRONG! Many small business owners who create S-Corporations are still held responsible for lease obligations and other issues related to their business. This is because small business owners usually have to personally guarantee leases and such to obtain financing for business related items.
So the bottom line is spend the money to talk to a lawyer, and understand what will happen if your business fails.