Equity via Systems in your Independent Startups / Business Idea

Hi, I am Patricia Bottero St-Jean, founder of Open for Business, and business research strategist. Last Tuesday, I was interviewed at a local radio station in my town and the host of the program and I were talking about systems in small businesses. Systematization is one of those frameworks that, when applied with discipline, makes the business owner’s life, and their success easier and faster and it hugely contributes to their quality of life. It’s a set of procedure that are repeatable, documented, and enforced with the intent of creating consistency, save time, save money, and increase predictability. Every aspect of a business can use a system, from the simple act of greeting customers, for example, to building a marketing plan, to growing a team, to developing new products or services, et cetera. Even the building of systems should be a system. That’s also one of your many considerations you should have before you choose any type of business, because the systems that are in place or need to be built will affect your quality of life and your success as a business owner. When it comes to systems, there is also one other less obvious advantage to building a well-oiled machine of business systems, besides giving the owner more time to pursue other activities such as time with family or hobbies etc. So that is how, that other element is how much equity good systems can create and that the owner will be able to cash in when they are ready to exit the business. Let’s examine how systematization contributes to building equity and how taking into consideration in the early stages of your research of the right business for you to start, can really help you make a better decision on the type business your should choose. It could be an independent business startup, a turn-key concept such as a franchise or business opportunity, or the acquisition of an existing business. So let’s talk today we’re gonna discuss today independent business startups. So in a startup from your brand new idea, everything needs to be created from ground zero. Depending on your entrepreneurial style, the task of building systems might be an exciting prospect to you or a dreadful one. Regardless, in a startup, creating system from scratch means also that the ramp-up of your business model to profitability is gonna stretch farther in time. So especially here, the ramp-up time, it should be estimated in advance in order for you to plan for adequate working capital included in your startup costs. The working capital in starting a business allows you, the entrepreneur, to pay your bills and keep the lights on in your business and in your life and pay yourself while the business ramps-up. So if you, for example, you estimate that it will take you 12 months to get to the point to break-even, break-even where expenses and revenues are equal, and another six months to become profitable, then you should calculate 18 months of working capital to cover your expenses. So this is even more important if your business is a brick and mortar business with fixed recurring costs, such as rent that you have to pay every months. Now here’s the good news for independent startup. You have a great opportunity to build equity that can be cashed-in once you exit the business, on some conditions. Building the systems also helps you to successfully hire and train employees, which in turn will allow you to scale your business beyond your role as an individual contributor who generates revenues. A key element to building equity in a business is that the business should not depend on the owner to be a producer of revenues. Otherwise, once the business is for sale and the original owner leaves, revenues will be diminished and so will the value of the business, hence its equity. So, to recap, not having solid systems in a business that will allow you to not be the main revenue producer in your business will not only make you a slave to that business, but also reduce the equity that you can cash-in when you are ready to leave and it will also limit your pool of potential buyers for that business. That’s it for today. I hope it was helpful. Meanwhile, leave me a comment or your questions. I’d love to hear your thoughts on this topic. Thank you for watching. Next week, we’ll discuss systems and equity in turn-key concepts such as franchises or business opportunities. So cheers to you for choosing the right business for you as vehicle to building a life you love!

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