Thomas P. Rood, Paycheck Independence Day
Many people will tell you that if you want to get rich, you have to start your own business. According to the SBA Office of Advocacy, in 2009 there were over 27 million businesses in the United States. It appears a lot of people want to get rich.
Once you take the plunge and start your own business, what is your chance for survival? According to the SBA, 69% of new firms started in 2000 or later survive at least two years and 51% of those firms survive at least five years. In the short-term, your chances for survival are actually quite good.
After you decide what kind of business you are going to create, the next most important thing you have to do is figure out how you are going to finance that business until you become profitable. The SBA says that small businesses rely heavily on owner investment and credit, averaging about $80,000 per year.
Where does that money go? Depending on the type of business, you may have to hire employees. If you are going to hire employees, you will probably need an office or retail store along with all of the overhead that goes along with that. Add in vendors, attorneys, accountants, and the costs of any other work you cannot do yourself, and making it to “profitable” can be quite a challenge.
Along the way, as a business owner, you will quickly discover who gets paid first and who gets paid last. Employees get paid first. You can’t tell them “We didn’t make enough money to run payroll this week. Sorry.” I would not want to be around for that mutiny.
Who gets paid last? You do: the business owner.
It’s not good enough to get your company to the point of being profitable if you can’t pay yourself at least as much as you were making before you started your business. What can you do to improve your chances of making it to that point?
Depending on circumstances, you might be able to work your old job while trying to build your new business. If you can’t, then you are going to have to rely on your personal savings to pay your bills until your business can pay you enough to cover them. At that point, it becomes a race between the amount of savings you have and how long it takes to become profitable. Many people lose that race. In 2009, the SBA reports that over 700,000 businesses either closed or declared bankruptcy.
If you do survive the race to profitability, that’s just the first step. Now you become susceptible to all of the dangers every other business faces like bad economies, competition from other companies, making sure new products are ready to sell when old products reach the end of their lifecycle. The list of challenges is long.
What if you could minimize the amount of money you needed from your business to pay your personal bills? That would make you less reliant on the profitability of your company during hard times. Is there any way you could do that?
The best way to do this is to do what I call Purpose Focused Investing. Take some time to make a list of your bills and identify which bill you absolutely could not cancel that costs you the least amount of money. Then, start saving to purchase an Income Investment to pay that bill. When that is done, do the same thing for each bill in turn.
In my book, Paycheck Independence Day, I describe in detail how to systematically eliminate your dependence on a paycheck to pay your bills. Best of all, you get to enjoy the results immediately. That’s a big advantage for a business owner trying to manage those times when he or she will not be able to get paid from their own business.
Paycheck Independence Day is available at Amazon.com in both paperback and kindle versions. For more information, go to www.plain.com.
About the Author
Thomas P. Rood is a self-taught software engineer with over 30 years’ experience. He has worked with a wide range of companies including Charles Schwab, Cisco Systems, AT&T, SBC, Pacific Bell, The Golden Nugget Hotel and Casino, The Mirage Hotel and Casino, US Sprint, Ricoh Silicon Valley, Ricoh Innovations and RSA Security. Most of Rood’s contracts ended after one or two years and unemployment became a frequent challenge in his life. He knew then that he had to become an expert on money management or he would not survive. Between 2004 and 2006, Rood figured out the right way to manage his money so he could eliminate his dependence on a paycheck and developed the Paycheck Independence Day money management system to solve this problem.