UPFRONT INVESTMENTS – WHAT’S THAT ALL ABOUT?
If you’re considering your own business it’s probably for one of two main reasons. Either you want more time or you want more money. The ironic part is that starting a business is going to cost some of each. First let’s talk about those “upfront investments”.
In general there are three types of investments required to start your business:
1. Product/Business Knowledge – As an initial startup cost you can expect to invest $200 – $700 to get product and marketing materials for your personal use. This is a legitimate expense and I would have a hard time believing in or being comfortable starting a business that didn’t expect me to get to know the product that I was selling.
Many people want to start a business with zero investment but consider this; if you were hired in a traditional job by the marketing department of a widget factory, they would provide you with a wide variety of widgets so you can better understand the value that you are bringing to your customers. When you start your own business you are your own marketing department, and as such you are responsible for the costs associated with that.
While product/business knowledge should be an expected upfront expense there are a few things you should ask. What is the return policy? If there isn’t at least a 30 day refund policy, be cautious. How quickly can you expect a return on your investment? How long did it take your support team to see a return on their investment?
2. Inventory – With an inventory business you purchase bulk products at a wholesale price, then you stock those products at your house and deliver them to your customers for a retail price, usually 30%-50% over wholesale. Inventory costs can be anywhere from $500 – $5000 monthly or quarterly. If you are a driven sales person and have the money this might be an investment that you are willing to make and you could actually make some decent money. However, this is also a pitfall that could hurt you. If you make the investment and don’t sell your inventory you are out that money. Even worse, some people choose to put those investments on their credit cards. I met someone in one of these businesses who earned “the car” and I commented to her, “you must be doing very well in your business”. She replied, “Yes, I am, I have $30,000 on my credit card to prove it.”
Buy In – There are many companies that allow you to pay an upfront “buy in” this can be anywhere from $2000 – $10,000 or more. Nothing tangible comes with this buy in, instead what it allows you to do is buy your position within the business before you’ve done the work. It doesn’t guarantee you an income, it just guarantees that if you meet whatever quota is expected you’ll get more of an income than if you hadn’t bought in. While you may have the money to buy in, or be comfortable risking your credit to buy in, would you be comfortable asking your friends to do the same?
In short, you can expect to invest something, but you should know what you are getting for that and be comfortable with the risks entailed if you decide that the business is not for you.
TOMORROW’S BLOG: TIME – IT’S A FUNNY THING