“If I could go back, I’d be more frugal, like the way I live now, and then I would have had more to invest in my business,” says Ms. Richard. “I would have been more aggressive about saving.”
Ms. Garbens backs up that idea. Have a nest egg, she advises: You need an emergency fund of about six months' income to carry you if the business doesn’t pick up right away. You also need a network of people who will refer business to you. Otherwise, it’s tough to get started.
And a business plan is crucial, she adds.
“Think it through before you take the plunge,” Ms. Garbens says. Before leaving your job, think through how you’re going to make money, how you’re going to market your product, who you’re going to call for networking. “Put some ideas on paper, brainstorm with friends, do some market research about the idea to see if there’s a need for it, and a need in the area where you’re going to launch. Talk to people who are in the business and ask about the hurdles they’ve had to overcome. Sometimes you can piggyback by being an intern in a company to someone with the same job to see if it suits you.”
You can’t avoid deviations from the business plan, as unexpected things inevitably come up with a start-up. But a business plan is like a blueprint.
Finally, she says that, if you ever dream of running your own shop, watch your debt level. Pay off debts as fast as you can before you launch anything.
Financial challenges during start-up
“In early 2011, the company needed a cash injection, but I was tapped dry,” says Ms. Richard. “I desperately wanted to keep my share of equity, but I needed to pony up some cash. I was very tempted to cash in my RRSP that I accumulated while working at Bain, but had promised myself I’d do everything possible to keep it. In the end, I ended up moving to drastically reduce my rent, and negotiated with my other shareholders to draw a lower salary throughout the year to meet my buy-in.”
Ms. Garbens suggests entrepreneurs be prepared for such situations by disiplined budgeting.
“Pay yourself first, then put aside 10 per cent and save it,” says Ms. Garbens. “That way you learn to live on what’s left and you never really ignore yourself.”
She recommends dividing expenses into discretionary expenses and fixed expenses. Fixed are what you absolutely must pay for, such as the roof over your head and groceries. Discretionary ones are what you want, but don’t need.
“Do you need those new shoes?" she asks. “Probably not. But if your rain boots have holes, you do.”
Ms. Garbens's other tips include: Pay attention to taxes. People might not use an accountant or a tax preparer so they don’t necessarily know the big picture. Tax planning can help you make sure you don’t leave any money with the CRA that has your name on it. And if you've invested outside your business, for instance in the market, look out for the costs, such as fees. Over time, they may erode your wealth.
Ms. Richard's company is approaching the break-even point, according to Ms. Richard, but there are many growth opportunities she still wants to invest in. After a year and half, she realizes that building a profitable company is a marathon, not a sprint. Her short- to mid-term goals are to hit more than $1-million in revenue, have a profitable business and be able to work from Maui one month a year.
“You see traffic, revenue and profits grow, but never as fast as you’d like,” says Ms. Richard. “You hit your goals and milestones but you’ve already set bigger ones and it’s hard to stop and appreciate the progress that’s been made. You need stamina and determination to keep growing and pushing the envelope.”
Ms. Garbens suggests Ms. Richard think about a longer-term issue: her exit strategy. While Ms. Richard is a long way from that, Ms. Garbens suggests she start thinking about it now, in case factors affecting her business change, or her passion for the business wanes.
“A lot of people leave it until the year before they want to retire. You need to think through the process of leaving the business about seven to 10 years before you actually do."
“As an entrepreneur, you’re exposed to a lot of risk and you just have to be able to block it out, deal with it and move forward,” Ms. Richard says. “No regrets. If this business should go under, I’m confident in my ability to go out and get a job.”
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