It is said that 80% of all small businesses fail within their first 5 years. There are many reasons for this, ranging from people simply being lazy to people not knowing what to do in order to prepare a business for success. Oftentimes, new business owners think that they can open the business and, with a couple of customers, profits will flow in; they do not understand that it takes much more than a few good customers and some snazzy business cards to create a solid foundation for a new business.
Although this article focuses on a real estate investing business, the tips can be used in any line of work. Before opening any LLCs or corporations, the primary individual needs to sit down and write out a concrete business plan, including financial goals and timelines for his new endeavor. Without goals, nothing will prosper. Alan Lakein, the well-known time management icon, said: “Failing to plan is planning to fail.” This is true in more than a business plan, also. The lesson can be carried into any new investment. In the world of real estate, it is very easy to walk into a deal with no idea how you are going to get out of it. You have already put your own money into purchasing the property, and likely to repair or enhance it. Now, what do you do if the property sits for months and months with a “For Sale” sign in the front yard, but no one expresses interest in buying it? You are out the money you have put into it, and now you must maintain and continue to hold without profits. This is a sinkhole which can be avoided if you have some defined goals before stepping into ownership. Smart investors will have plans A, B, and C for every deal they approach, so they have an exit strategy in any given situation.
Another important part of creating a firm foundation for your business is to operate – at least in the beginning – on a shoestring budget. Since most new business owners are paying out of pocket at the start, it is smart to keep the overhead to a minimum. A good rule of thumb is that if what you are looking to purchase will not immediately put money in your pocket, save you time, and/or replace something you have that does not or is not working, do not buy it! A brand new business does not need the latest in handheld computers or furniture to operate profitably. The Rich Dad Education group released a great board game several years ago, called Cashflow. In this game, players work around a wheel of paychecks, unexpected expenses, and small investment opportunities until they can get out of the Rat Race and onto bigger investment chances, where they become financially independent using passive income.
One of the most frustrating squares to land on while in the Rat Race is called a Doo-Dad square. When a player lands here they must pick up a Doo-Dad card and pay whatever it tells them to. Doo-Dads range from coffee with friends to a $17,000 boat, and you never know what you might get. When setting up your new office or buying pretty accessories, think about if you really need that item or if it is just another Doo-Dad that you may regret. A beginning real estate investor needs only a few items to get started: a telephone and voicemail, a functional computer, basic computing software (such as Microsoft Office), the Internet, and a printer at the minimum, though I would recommend a printer/copier/scanner combination unit. Most other things at the opening of your business are Doo-Dads.
Being organized is crucial to a successful business. Struggling to find important paperwork, references, contacts, and other documents or resources can lead to anything from losing a deal to going under. One way to avoid wasting time and energy and maintain organization is to ensure that you are not reinventing the wheel. Technology is huge in today’s world; even if you are uncomfortable using or understanding it, the fact is that it is essential for a time-efficient business model, and worth your while to learn about it. In real estate, there are thousands of technological tools that can make and investor’s life simpler and easy to organize. Automated calling services exist where you can record a short message and the program will call 1,000 potential buyers/sellers. There are virtual assistants who work hard and well (at an extremely affordable rate) doing your busywork, such as creating spreadsheets, making flyers, organizing paperwork and files, prioritizing emails, and paying bills. Microsoft Publisher has dozens of templates you can customize to your exact specifications. Documents are easy to create and sort in Microsoft Word, so you can just open and print them off. In Microsoft Excel, it has never been easier to make spreadsheets involving complex formulas, graphs, and diagrams which you can save and search for later. There are so many ways to incorporate technology into your business that it would be foolish to stick to old-fashioned methods that take more time and energy away from what matters.
A great-yet-simple organizational idea that I recently read in Thomas J. Lucier’s book, “The No-Nonsense Real Estate Investor’s Kit,” is to keep a Deal Book for every real estate property you are working on. Lucier uses 1-inch thick 3-ring binders, which have plastic overlays on front, back, and spine. He labels the book with the property’s street address on the front and spine of the book, for easy-reference, and keeps every paper relevant to said property inside, in sheet-protected pages. This is makes accessing records relating to that property extremely easy, and it looks professional when he has meetings with owners, bankers, loaners, et cetera. Once the deal is closed, he holds on to the binder for as long as he owns the property.
As you can see, there are so many ways and more to form a concrete basis for your new business. However, the basics still apply: keep things simple and use what is already there and available to you. Do not neglect to plan. If you go into this new endeavor with a good, solid goal of what you want and how you plan to get there, the chances are pretty high that you will have success in your new adventure.