Written by Jamie Irvine | 4-minute read
They started to build a new commercial building but before they could finish they ran out of money. Now the building sits empty, partially completed, and what they invested is gone forever. They can neither go back nor go forward. In the end, they declare bankruptcy and walk away from the project.
How could this have been avoided and what does it have to do with starting a business?
The Importance of Counting the Cost
Many people start a business with nothing more than a dream and a vague notion of how they will turn that dream into a reality.
They are filled with passion, resolve, and hope but their entrepreneurial dream quickly becomes an absolute nightmare and it primarily starts with a failure to count the cost.
Interestingly, the self-employed people who fail quickly, typically in the first year, are often at a financial advantage over the self-employed people who make it two or three years.
When you fail early you can minimize the damage, cut your losses, and move on. Once you have been at it for two or three years and things aren’t going well you feel like you can’t quit because you have invested too much money, time, and energy.
The result often is that you grind it out for another year or two until finally you collapse and are forced to admit that the business is not sustainable. By this point, you have exhausted all financial resources and gone deeply into debt.
You can neither turn back time and go back nor do you have the financial, physical, and emotional ability to go forward. The nightmare ends but you are personally left to deal with the fallout of your entrepreneurial failure.
How can you avoid this tragic outcome that most self-employed people eventually experience?
To properly evaluate a business idea, you must ensure that you adequately count the cost in advance.
Counting the cost involves:
- Financial Cost – The financial resources to launch, even a small digital business, are much more than you initially think. At times it can cost three to four times more. If you quit your job before the business is producing adequate revenue the financial burden intensifies.
- Physical Cost – Most people don’t even think of the physical cost. Listen to interviews with entrepreneurs and you will hear many of them talk about how they weren’t taking care of their health in the early years of their business. Long days, lack of sleep, exercise, and a balanced diet will take their toll.
- Emotional Cost – The emotional resources required to deal with issues like constant rejection and imposter syndrome should not be underestimated. It’s hard to start a business and it takes a certain emotional makeup to handle it.
- Family Cost – If you have a family the cost to them can be very high. While you try to launch the business your time with them will be greatly reduced, the financial costs impact them now and threaten their future, and if you fail moving back in with your parents while you regroup will affect everyone.
Starting a business is one of the hardest things I have ever done, and I’ve started three businesses on my own and so far have been apart of 6 other startups.
I guess I am a sucker for punishment.
Failing to count the cost is one of the earliest mistakes self-employed people make on their entrepreneurial journey. Don’t make that mistake.
Let’s talk about your business.