First Person: How My Small Business Taught Me Financial Discipline

Financial mismanagement can kill a business. It is possible to start a business without ever going into debt.

A little more than six years ago, I decided to start a small business. I knew the risks. I heard all of the negativity about how most businesses fail and only about 10 percent ever make it past their first year. I was not deterred. I set my mind on launching my consultancy in the summer of 2005.

Unlike most people, my reason for starting my small business was not primarily financial. In fact, financial rewards sat pretty low at the time in comparison to my primary reason. I wanted more than anything to learn from the experience. I needed the experience and exposure of working as a consultant in order to accelerate my career.

Prior to August 2005, I started a new full-time job working as a marketing strategist in a boutique consultancy. My boss at the time believed deeply in learning on the job. Unfortunately, with the high-profile clients we had, there was little room for me to get significant face time. Instead of force-feeding me to clients, he encouraged me to take a shot and see if I could do the same work on my own. It was a unique challenge, but one that I was open to.

I set August 2005 as my launch date for my own consultancy. I decided to focus on a different industry sector so as to avoid any conflict-of-interest issues in the future. When I did the research about starting a business and entrepreneurship, I discovered many of the reasons for failure revolved around financial management, especially debt.

In order to manage the financial aspects of my venture, I set three very specific guidelines. If these guidelines were not met in the first six months, I planned to close the business immediately.

Stay on budget

After calculating my costs for infrastructure, software, vendors, marketing, operations, and everything else, I came to a startup budget of $5,000 to open my consultancy. While it may not sound like a lot to start a business, it was significant to me, a newly married man with growing responsibilities, including buying a new home. I promised my wife I would stay within budget and not go one penny over at the time of launch.

Acquire absolutely no debt

One of the biggest killers of new startups is acquiring too much debt. Examples include borrowing from friends and family or taking a huge loan out from a bank to cover startup costs. I hated the idea of being indebted to anyone. I certainly did not want to start with my assets already owned by someone else. I promised myself that I would only spend what I had within the budget and from what I brought in from clients.

Set and meet the goal

While starting a business was daunting, generating new business was even more challenging. In my city, consultants came a dime a dozen. I knew it would be a tough road ahead, but I believed in myself and the marketing services I offered. My goal was to simply make back my budget of $5,000 that first year. It was a modest goal. For a business that ran part-time, nights and weekends, it proved to be a great challenge.

With my guidelines set, I launched in August 2005. After several free and pro-bono sessions, I obtained my first paying client. I generated $50 on that first sale. The sale was so small that it barely covered my parking fee and subway ticket for that day.

But I persisted. I kept going with the free sessions. I stuck with my guidelines. Soon, that $50 sale became $100, then $250, then $500. It kept climbing. I grew more and more confident. As my business began to take off in the few months after launch, I started to receive offers from many banks. They sent me pre-approved business credit applications and other financial incentives. I stuck to my guns and shredded every one of them.

As the business continued to grow, I wanted to put more money into it to accelerate the growth. Again, I resisted and stuck with my guideline of spending only what I made and not going over budget. I had to turn away some really high-paying offers. In the end, I know I made the right decision. I grew slow and steady, but more importantly, the business did not slip into debt.

In the fourth month after I started my part-time consultancy, I received several checks from a client totaling over $6,500. I had met my goal. The business was officially profitable. I had no debt. Instead, I had acquired an incredibly valuable learning experience on how to launch a business without ever incurring debt and still turn a profit. I learned the importance of believing in myself, my products, and the discipline to execute.

Now in 2011, I look back fondly on those early years, the struggles, and the accomplishments. I still run the business part-time, but now I have expanded to different services and clients - and still have not incurred debt. We use only a debit card and have absolutely no credit cards. I've made more money in the venture than I ever thought possible, but, more importantly, it has helped me learn valuable lessons that helped me grow personally and professionally.

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