Basic tips for starting a firm

A survey by Northwestern Mutual of the class of 2001 college graduates found that more than half (56 percent) said it was likely that they
would work for themselves someday.

By Craig Earnshaw
Brigham Young University

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 [email protected].

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