There is a certain amount of financial loss involved in most start ups. It is important to have a ballpark figure of the maximum dollar amount you’re willing to lose before the business becomes too unprofitable; you should know how much money you’re willing to see go down the drain with your new business venture in advance. If you choose not to understand your financial commitment levels in advance, you will probably be in for a painful awakening in the future.
The Sinking Ship
Suppose you have $75,000 in cash and investments that you have accumulated over the years in your savings account. What if you open a business and are willing to limit your cash commitment to $25,000 of your own money? What if that business starts losing money and needs additional funding? What will your reaction be? Will you cut your losses and liquidate the business, or increase your cash commitment?
Do not throw money into a sinking ship. Assess the business and see where changes need to be made and make those changes. Try to ensure that the sinking operation becomes successful before you throw in the towel. Throwing money at problems won’t make them get any better, and could potentially make the problem worse, or create a whole new host of complications to deal with.
Time Commitment
Before you start your new business, establish a time commitment goal; give yourself a time line for profit objectives and plan out contingency plans if you do not reach your profit objectives in the allotted amount of time. If you are dealing with an operation that is barely reaching the break even point you need to sit back and analyze how much time you are willing to invest in trying to make that operation run more smoothly and start earning some revenue. Consider whether your time might be better spent using what money you have left over to start a new, similar, better-run business, or you might want to consider returning to the status of employee rather than being an entrepreneur. This sounds pessimistic, but this is realism.
Contingency Plans
If your business does fail, it pays to have a plan in place to get yourself out of the entanglements with the least expense involved. There are two options:
1.Forced Liquidation: When this happens, creditors force the sale of company assets. This is an expensive option. The price you get back may be much less than what you paid, you will definitely not get the best price, as you would with a voluntary sale, and you may not always be given the necessary time to find the right buyer; but try to find the best buyer possible for different parts of the business
2.Selling the Business: A voluntary sale of the business is probably your best bet; you can sell your business for the most amount of money you can find and there aren’t stringent time limits in place. Potential buyers tend to be willing to pay more for businesses that are still in operation because that business still has some ongoing business value.
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