Deseret News Archives,
Sunday, April 28, 2002

Edition: All
Section: Money
Page: M01
Length: 67 lines

Basic tips for starting a firm

Many of the older generation -- "and most of the younger generation" -- are thinking about starting a business. I have compiled a list of items to help you get started.

1. Pick a business based on the 2 Ps: passion and profit. Your business should be something you can get passionate about. Here's a good test. If you get excited when you explain your idea to other people, you have passion for the business. If you find yourself thinking about it at odd moments, you've got passion. Passion will carry you through the tough times.

But no matter how passionate you are about your business, make sure it's going to pay off eventually. Don't spend your time on a marginal idea. A business should provide the opportunity for substantial income. You're in business to make money, not just to prove a point.

2. Speaking of money, there are only two reasons to start a business: to make money while you're sleeping, and for the harvest. If you start a business for any other reason, you're probably just creating a job for yourself. And while that may sound good at the outset, in the long run it will not be a business. A successful business is one that can be run by someone else, or can be replicated in another location. The reason it's so great to own your own business is that you're making money even when you're not there. Pity the professionals -- "the doctors, lawyers and others" -- who work for an hourly rate. Others may envy that rate (or despise it), but when a professional is not on the clock, they're not making any money at all.

The second reason to start a business is to develop a valuable asset and then sell it, turning hard work into capital gains. This is the American Dream. Run your business from the beginning as if you're preparing to sell it. This will make it that much easier when the time to sell arrives.

3. Follow two wealth accumulation plans. As mentioned above, you start a business to sell it and reap the rewards of your hard work. But during the process no one can know the size of the eventual payoff. It's therefore prudent to take advantage of the tax shelters available to a business owner. Maximize your annual contributions to your retirement plan, whether it's an IRA, SEP or 401K. The power of compound interest is best seen in the long-term accumulation of assets in these plans.

And by the way, help your kids get started by helping them fund Roth IRAs as soon as they begin earning money. A Roth IRA is the best retirement plan available under current tax law.

4. Finally, follow your mother's advice. Be absolutely honest. There is nothing that will go further in business than honesty. Be honest with yourself, be honest with your employees and be honest with your customers. "A reputation takes a long time to build, but only a few seconds to destroy." People do business with those they trust, and you have to earn that trust either through hard work or from your reputation.

Right now is the time to start a business. The dot-com mania is long gone, and most people have returned to business basics. There is a lot less noise out there, and if you've got a good idea and a good plan, you're going to get some attention.

Get going and good luck!

Craig Earnshaw is associated with the BYU Center for Entrepreneurship. He can be reached via e-mail at cfe@byu.edu.

© 2001 Deseret News Publishing Co.