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Aug 3, 2011 - 3 minute read - Comments - business planning

The Buy A Job Small Business

There is a difference between having a job and owning a business. Unfortunately, when many people start or buy a business they don’t make the proper distinction.

Let’s use an example. Bob has a job where he earns $50,000 a year. He wants to be his own boss so he buys one of the smaller fast food franchises where he takes home $50,000 in profits every year. He is his own boss and he makes the same income as before. Sounds good right? Not so fast.

To have a business where he earns that same $50,000 he had to:

  • Pay a franchise fee of approximately $25,000
  • Pay $150,000 for equipment and leasehold improvements
  • Pay $20,000 for inventory and working capital

You might be thinking that this isn’t a big issue. He financed the equipment and leaseholds under the CSBFP so it costs him $60K out of pocket. He had money saved up and it’s an investment.

The problem is that the return on his investment is nothing. He works 50 hours a week and earns his $50K through his labour alone. The money he has invested is earning nothing because the business doesn’t provide a return beyond his salary. Even though he works 50 hours a week, he is constantly on call because he is the business owner. If some employee doesn’t show up for a shift, he has to jump in to fill the gap. He is working harder, longer hours than when he had a normal job.

Bob has increased his risk considerably. He is now responsible for a six figure bank loan that must be paid every month. His revenue isn’t guaranteed. It varies with the economy, the intensity of competition, and other factors largely out of his control. Because he is not earning a return over and above his wage, he is getting paid nothing for taking these risks. Bob should be compensated for making an investment. He should be making a return beyond his salary in line with the money he has invested and the risk he is taking.

My point isn’t to try to talk you out of starting or purchasing a business. It’s to make sure that you do your homework and plan appropriately. When you write your business plan, you should be calculating return on investment (ROI) to make sure that you are projecting a return that is in line with the risk you are taking. If you do your projections and you are just able to take a salary out of the business, you are better off keeping your job and finding a more lucrative business opportunity.