GOING FOR BROKE

Years ago a money man gave me some good advice about starting a small business. Unfortunately, like a lot of you I suspect, I didn’t always adhere to it. He said: The money you think you will make in the first year—you will lose. The second year you will break even. The third year you will make what you thought you would make in Year One.

Thousands of people don’t  follow that dictum and there are exceptions to the rule but many if not most news businesses go bust in the first six months.

People go in under-financed. A lot of people even take out second mortgages on their house to get things started and then often lose their homes when things turn sour.

Many times people don’t realise the hours they have to put in. They start with the ideal of sharing the hours but when the profits don’t come the husband often has to go back to work to cover the bills and pay the mortgage and the wife ends up alone manning the store. Long hours. Weekend work. Trying to raise the kids and have some quality time together. It’s too painful to stop and calculate that you are probably getting about two bucks an hour and no super and no holiday pay and no long service leave.

And nobody factors in an unplanned pregnancy or an illness or accident.

Franchising is one of the diciest businesses. No matter how glossy the brochures  are or how rosy the profit forecasts. There are horror stories of the parent company not following through with promised support and advertising campaigns.

And a head office decision can send you to the wall. Just this week the worldwide chain of coffee shops, Starbucks, announced it would close 600 outlets.

Australian franchisees don’t know yet, if they’ll be among them.

I raise the issue today because of that and e-mails overnight about a  couple of small business horror stories.

One involved a young couple and a news agency franchise through Supanews. A couple of years ago they owned a house, a boat and a couple of cars. Now they’ve lost the business and the bank is about to repossess their house.

The other case concerns a truckie. As his friend told me:

A couple of nights ago I had a phone call from a truck driver. He was in tears and was going to kill himself. Why? Well it seems that his wife had inherited a home after her mother had died . He was working for one of the bigger transport companies as a driver and wanted to have a bit more security for his wife and family. He convinced his wife to put the house up as collateral on buying a new truck and two B Double trailers. Things didn't go to plan and they have now lost the house, the truck, his wife has left him and taken the three kids. He’s twenty eight and his wife twenty five.

Just a couple of stories. Similar financial tragedies are being played out across the country and it is going to get worse.

Friday, July 4, 2008

© Copyright Derryn Hinch 2008