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You Can Be Brilliant At Work And Still Not Ready To Run A Business · My Accounting Advantage

• 0:01
  SPEAKER_01: Hello and welcome back to the podcast My Accounting Advantage.
• 0:05
  SPEAKER_01: Today we're going to be discussing a really important topic depending on who you are.
• 0:11
  SPEAKER_01: And in the world of business, there is frontend and back end.
• 0:14
  SPEAKER_01: It's something we've discussed many times on this program.
• 0:18
  SPEAKER_01: And just because you are really, really, really good at what you do as an employee in a business, does that mean you should move over to having your own business?
• 0:29
  SPEAKER_01: And do you have the business mindset to bring that all together?
• 0:33
  SPEAKER_01: That's what we're tackling today.
• 0:35
  SPEAKER_01: And this is a great topic as I feel we can keep so many people out of the potholes.
• 0:40
  SPEAKER_01: So let's bring her back.
• 0:42
  SPEAKER_01: My Accounting Advantage, Mai Harris.
• 0:45
  SPEAKER_01: Mai, welcome back.
• 0:46
  SPEAKER_00: Thank you, Lee.
• 0:48
  SPEAKER_01: Now, Mai, you must see this all the time, because in my world, in the world of training people, I see the star employee, they're doing so well because they've got nothing in their way.
• 1:01
  SPEAKER_01: They've got this incredible talent at what they do to the consumer who's purchasing those services.
• 1:08
  SPEAKER_01: And then they say, I want to run my own business.
• 1:13
  SPEAKER_01: Take us into this.
• 1:15
  SPEAKER_00: Yes, I get this all the time.
• 1:18
  SPEAKER_00: I see a lot of ambitious business startups often come in and just said, Look, I have a really good idea, and I'm also a very capable individual, and I always have been the star employee of the business.
• 1:35
  SPEAKER_00: So now I quit my job and I want to start a business.
• 1:39
  SPEAKER_00: So how do I do it?
• 1:41
  SPEAKER_00: And I thought, hang on a minute, shouldn't you plan this before you quit your job?
• 1:46
  SPEAKER_00: For the listeners out there, if you're actually thinking about leaving your job before starting a business, you're doing it backwards.
• 1:56
  SPEAKER_00: So I would like to suggest that you sit on that thoughts, pause, pause, pause, breathe, and feel the excitement.
• 2:07
  SPEAKER_00: Do not act upon it yet.
• 2:09
  SPEAKER_00: Because it's exciting to have that thought in your head and then just put in your resignation and think that everything's going to be okay after you quit.
• 2:21
  SPEAKER_00: It doesn't work that way.
• 2:22
  SPEAKER_00: So for a successful business startup, you really need to make a plan.
• 2:28
  SPEAKER_00: It's an exit plan.
• 2:30
  SPEAKER_00: You know, when there's a fire, the people that will survive, they actually have many five drills so that they can practice for when that unfortunate event happened.
• 2:45
  SPEAKER_00: So you need to think about whether or not you have working capital to start the business.
• 2:51
  SPEAKER_00: What do you need in order to, you know, start the business?
• 2:56
  SPEAKER_00: So we talked about the SRS framework in one of my podcasts.
• 3:03
  SPEAKER_00: So maybe go and listen to that.
• 3:05
  SPEAKER_00: That will help you make the decision about whether or not what you need to do first in order to start the business.
• 3:13
  SPEAKER_00: So S is structure, R is risks, and then S again is sequencing.
• 3:21
  SPEAKER_00: So SRS.
• 3:22
  SPEAKER_00: You need to follow that framework in order to make a um well thought-through decision before you actually quit your job.
• 3:32
  SPEAKER_01: This is so important, and I don't want to take away from anyone who thinks they should run a business and they can.
• 3:39
  SPEAKER_01: But as a small business owner, there is some real brutal truths that people don't realize when when you're working for a leader or in a business that's been established, you don't see all the things that go on because they just happen.
• 3:54
  SPEAKER_00: Yeah.
• 3:55
  SPEAKER_01: The mail gets put somewhere, the bills get paid, the electricity, the phone, the internet, all these things just seem to, we turn up and they're on.
• 4:04
  SPEAKER_01: But for things to be on, there is all these processes in place that allow it to work.
• 4:10
  SPEAKER_01: Running a business has nothing to do with the skill of the person delivering the work.
• 4:15
  SPEAKER_01: They're actually two different things.
• 4:18
  SPEAKER_01: You might be so good at, let's say you're a real estate salesperson and you've been the top salesperson in a business for a long period of time, and you're part of that football club that you work, and you're the star player, and then you want to go and do your own thing, and I'm gonna hire this person and this person.
• 4:35
  SPEAKER_01: And my we might even start with this one as a point of interest.
• 4:39
  SPEAKER_01: Yeah.
• 4:39
  SPEAKER_01: When you employ someone and you say, Oh, they're only gonna be X amount of dollars an hour, or they're gonna be$65,000 a year.
• 4:47
  SPEAKER_01: It is not$65,000.
• 4:49
  SPEAKER_01: What is the true cost of a person at$65,000?
• 4:52
  SPEAKER_00: Okay.
• 4:53
  SPEAKER_00: So if you are offering somebody like um the potential employee$65,000, that's just your base.
• 5:02
  SPEAKER_00: So that's their gross wage.
• 5:05
  SPEAKER_00: On top of that, you have to pay 12% superannuation.
• 5:09
  SPEAKER_00: Now payday super has come in, so that will be have to be paid at the same time as when you pay the wage.
• 5:14
  SPEAKER_00: And then on top of that, you have workers comp.
• 5:17
  SPEAKER_00: And that depends on your industry.
• 5:19
  SPEAKER_00: You know, it could be very low at 0.2 of a percent, or it could be very high at 5 plus percent if you're in a certain industry like construction, for example.
• 5:31
  SPEAKER_00: On top of that, you have, you know, like training costs, and you also have costs of managing them.
• 5:40
  SPEAKER_00: So that's the hidden costs, really.
• 5:44
  SPEAKER_00: So it just doesn't stop there.
• 5:47
  SPEAKER_00: You need to package it up to see, you know, what are the dollars and cents that it costs you, and at the same time, what are the overheads that, you know, having someone in your team is consuming.
• 6:04
  SPEAKER_01: And then we've got the marketing costs, because we've got to get the lead generation.
• 6:08
  SPEAKER_01: We've said this before, the fit out won't save you.
• 6:10
  SPEAKER_01: You've got to get people interested.
• 6:12
  SPEAKER_01: And any business has that attract, engage, commit.
• 6:15
  SPEAKER_01: How will you attract people to your business?
• 6:18
  SPEAKER_01: How do you get them to engage?
• 6:20
  SPEAKER_01: Which is, okay, I'll I'm checking you out.
• 6:22
  SPEAKER_01: Give me a proposal.
• 6:23
  SPEAKER_01: I may go ahead, I may not.
• 6:25
  SPEAKER_01: And then commit is they actually pay the tax invoice for the service you provide.
• 6:30
  SPEAKER_01: But anyone you're employing, that ongoing cost can be as high as 30% that you've got to add on to the the actual space.
• 6:39
  SPEAKER_01: So 65, you're looking at over a hundred thousand uh that that person's gonna cost.
• 6:45
  SPEAKER_01: And if you're putting two or three on, your break-even point, which is all your expenses before you get paid a dollar, is now part of that.
• 6:54
  SPEAKER_01: Do many people miss that?
• 6:55
  SPEAKER_00: Yeah, definitely.
• 6:56
  SPEAKER_00: A lot of um people who are, you know, might be the star employee, they still might have the you know, employee mentality.
• 7:07
  SPEAKER_00: They don't realize that, you know, there's the system cost and lead generation cost.
• 7:13
  SPEAKER_00: Who's gonna support me?
• 7:15
  SPEAKER_00: Which means that if you're a salesperson, like um in the real estate world that you are in, they used to just, you know, go and um sell.
• 7:26
  SPEAKER_00: And that's their only worries.
• 7:29
  SPEAKER_00: So they just got to sell the property.
• 7:32
  SPEAKER_00: But everything else has been taken care of by the franchisee.
• 7:36
  SPEAKER_00: So they don't have that distraction.
• 7:38
  SPEAKER_00: But when they're actually branched out, and I call it a breakout from being an employee, they all of a sudden didn't realize that, you know, oh, they need to answer their own inquiries, and it's not all about sales, it's everything else.
• 7:56
  SPEAKER_00: And um, they have to pay for, you know, like an admin person.
• 8:03
  SPEAKER_00: They need to do paperwork, they need to do bookkeeping, they need their own insurances.
• 8:08
  SPEAKER_00: So all of a sudden you're finding yourself doing your own book work, which means that you can't go out and sell as much as you used to.
• 8:18
  SPEAKER_00: All of a sudden, their revenue potential has been reduced.
• 8:23
  SPEAKER_00: They get a bit worried after that and life become quite chaotic.
• 8:28
  SPEAKER_00: So planning for all of that will be fundamental.
• 8:34
  SPEAKER_01: What are the three gaps that kill breakouts?
• 8:37
  SPEAKER_00: There are three gaps.
• 8:39
  SPEAKER_00: Number one is revenue gap.
• 8:42
  SPEAKER_00: What this means is owners underestimate the real cost of operating independently, just like what we mentioned before, or those costs.
• 8:52
  SPEAKER_00: And then time gap, which is how they can squeeze everything in in one day, because all of a sudden you have to do so many more tasks, not just selling.
• 9:06
  SPEAKER_00: You need to do admin, you need to stay compliance, there's bookkeeping, marketing, recruitment.
• 9:13
  SPEAKER_00: And if you have a team, you also have to empower them, you have to lead them, you have to answer questions.
• 9:20
  SPEAKER_00: If you're an employee and you used to be, you know, 80% productive and you're getting praise and you're getting pay well.
• 9:29
  SPEAKER_00: Well, guess what?
• 9:30
  SPEAKER_00: When you're a business owner, you probably only be about 30% productive because the 70% is to do all the ad mini things, to run the business, to answer questions.
• 9:47
  SPEAKER_00: Yes, and you can't bill for that, you know, for that time.
• 9:52
  SPEAKER_00: So if you're actually just relying solely on yourself to generate income, well, you know, you used to be generating income with 80% of your time, and now it's 30, you're not gonna earn as much as you used to.
• 10:09
  SPEAKER_01: What's the breakout readiness formula?
• 10:13
  SPEAKER_00: With the breakout readiness formula, is to understand, you know, that the business that you're venturing into will generate enough profit to sustain your you and also pay for the overhead.
• 10:29
  SPEAKER_00: You know, the business owner can afford to run the business for, let's just say, three to six months with the capital that you have.
• 10:43
  SPEAKER_00: So you need to have that safety net already in place.
• 10:48
  SPEAKER_00: You don't rely on, you know, the next paycheck to pay for your overheads because otherwise that will sink you pretty fast if you run out of money and then you have you'll be desperate to find the next paycheck.
• 11:02
  SPEAKER_00: That won't be good for you know your self-confidence.
• 11:06
  SPEAKER_00: And when you don't have the self-confidence, you tend to basically take the business backwards.
• 11:12
  SPEAKER_00: The next thing is have us have support.
• 11:16
  SPEAKER_00: The best way possible in order to break out to become your own boss is to have an income that is coming in, maybe passive income, or um your partner who's working full-time and generating sufficient funds that will sustain your monthly lifestyle and pay for essentials.
• 11:39
  SPEAKER_00: And then your income is not depending, they're not depending on your income.
• 11:45
  SPEAKER_00: It's it's a bonus, perhaps, you know, if you're privileged enough to be in that position.
• 11:50
  SPEAKER_00: But what I'm trying to say is you all you need a backup plan in terms of cash flow.
• 11:56
  SPEAKER_00: Make sure that you have enough funds to pay for your mortgage, your kids' school fees, you know, your monthly fixed living expenses before you venture out.
• 12:10
  SPEAKER_00: At least have three months of that in reserves because otherwise you can get yourself in hot water very quickly, and then you'll be scrambling to go back and trying to find a job.
• 12:23
  SPEAKER_00: And that would really take a hit on your self-confidence, there.
• 12:27
  SPEAKER_01: The working capital trap.
• 12:30
  SPEAKER_01: What is that?
• 12:31
  SPEAKER_00: The working capital trap is when many new owners calculate deals written instead of cash received.
• 12:40
  SPEAKER_00: So you're thinking that you're going to get that money now and you count on it and you already spend it when you haven't received it.
• 12:52
  SPEAKER_00: So um don't do that.
• 12:54
  SPEAKER_00: Because if it hasn't arrived in your bank account, it's not there.
• 12:59
  SPEAKER_00: So you don't count your chicken before the eggs.
• 13:03
  SPEAKER_00: That's the trap that a lot of business owners thinking that, oh yeah, I can afford this.
• 13:08
  SPEAKER_00: I'm going to go and commit myself to a new vehicle and pay the monthly repayments because I have this deal coming in.
• 13:18
  SPEAKER_00: And then if it doesn't eventuate, you get yourself in that very deep trouble because you banking on something that may not happen.
• 13:31
  SPEAKER_01: My I did ask you before about this, the gaps.
• 13:35
  SPEAKER_01: Just give us all three of those.
• 13:37
  SPEAKER_01: I don't think we got to get all three.
• 13:38
  SPEAKER_00: Lee, there are three gaps that kill the breakout and the dream of having your own business.
• 13:46
  SPEAKER_00: So number one is revenue gap.
• 13:49
  SPEAKER_00: Number two is time gap.
• 13:51
  SPEAKER_00: Number three is identity gap.
• 13:54
  SPEAKER_00: So I'll go through the revenue gap first.
• 13:57
  SPEAKER_00: So basically, you need to completely be comfortable that the business will generate enough profit to sustain itself after overheads.
• 14:08
  SPEAKER_00: So that number one, which is revenue gap.
• 14:11
  SPEAKER_00: Number two, time gap.
• 14:13
  SPEAKER_00: Can the owner protect time for high value work for remove and by removing the low-value tasks like admin, for example, are they support around you that you can perhaps ask your wife, your partner to support you with admins so that you can concentrate on generating income, generating revenue for your newly established business.
• 14:41
  SPEAKER_00: Number three, there's an identity gap.
• 14:44
  SPEAKER_00: Can the owner shift from being the top performer to build a business that performs?
• 14:50
  SPEAKER_00: It's really important to understand that maybe you need have the capital to hire someone else or get a subcontractor and then empower them to generate the revenue so that you're not the only um revenue generate generator in that case, because then the buck stops with you.
• 15:14
  SPEAKER_00: Your earning potential will be cap.
• 15:16
  SPEAKER_01: What's the final test in this one?
• 15:20
  SPEAKER_00: So the final test is, you know, you need to ask yourself, do I have 90 days of operating capital behind me?
• 15:27
  SPEAKER_00: And um, do I have support around me?
• 15:30
  SPEAKER_00: If the answer is no, well then you're simply not ready yet.
• 15:35
  SPEAKER_00: The main thing is to have sufficient capital behind you first and then give yourself some time to build the system and look at it, review it, and then maybe get some advice and ask your advisor whether or not I'm ready for this.
• 15:54
  SPEAKER_00: Am I, you know, future-proving myself?
• 15:57
  SPEAKER_00: And also do I have enough cash flow to keep going with the business?
• 16:02
  SPEAKER_00: Because I've seen it so many times.
• 16:05
  SPEAKER_00: It is very sad that people just simply run out of money and they're nearly there.
• 16:12
  SPEAKER_00: They're nearly, you know, at the not at the finish line, but they're about to, you know, take off in their business, but they run out of gas and they have to pull back and get out quickly because they can't simply continue.
• 16:29
  SPEAKER_00: So that that's not where you want to be.
• 16:31
  SPEAKER_00: It's like building half a house, you know.
• 16:34
  SPEAKER_01: It's such a good analogy, the gas one.
• 16:36
  SPEAKER_01: We've all had that situation.
• 16:39
  SPEAKER_01: Well, let's take this one.
• 16:41
  SPEAKER_01: You've got a beautiful car, which is what you believe is your product.
• 16:45
  SPEAKER_01: We've got a quarter of a tank of gas.
• 16:47
  SPEAKER_01: We've just hit the M1, and the next fuel station is way down the highway, way too far for us to reach.
• 16:56
  SPEAKER_01: So your beautiful car has to pull over at the side of the road because you're not gonna make the next service station.
• 17:02
  SPEAKER_01: And you can't just call NRMA and fill me up with gas.
• 17:06
  SPEAKER_01: No one's gonna come in and fill your business up with gas.
• 17:09
  SPEAKER_01: Now you may have thought I'm I'll go to the bank, I'm gonna take money off my mortgage, I'm gonna sell my house.
• 17:15
  SPEAKER_00: It's not a good plan.
• 17:16
  SPEAKER_01: I've seen lots of people have to sell their house to keep the business going, and it damages the family, the marriage, everything because not because it happened, because it wasn't thought out.
• 17:27
  SPEAKER_01: And I hope this podcast saves your house.
• 17:30
  SPEAKER_00: Yeah, yeah, definitely.
• 17:32
  SPEAKER_00: So if you are thinking about starting your own business, don't make a leap blindly.
• 17:38
  SPEAKER_00: Do your numbers first and get some advice, you know, if you don't really know how to start.
• 17:44
  SPEAKER_00: So that's where you start.
• 17:46
  SPEAKER_00: Don't get advice.
• 17:48
  SPEAKER_01: Mai, what's our final wrap-up for this podcast?
• 17:51
  SPEAKER_00: So the final wrap-up is to plan, go through the framework, you know, the three gaps: the revenue, the time, and also the identity.
• 18:03
  SPEAKER_00: Make a proper business plan and save up and have a backup plan on top of your business plan.
• 18:13
  SPEAKER_00: That way you can go out and do your breakout with confidence.
• 18:18
  SPEAKER_01: Another edition of My Accounting Advantage, My Harris.
• 18:22
  SPEAKER_01: Thank you for joining us.
• 18:24
  SPEAKER_00: Thank you, Lee.