When you are thinking of starting your business you’ll come across what I call “the Big Expense Cash Down Moments”. Economists have a more elegant term for this – fixed start up expenses. These large, one off (and recurring) expenses are going to bring you short term stress and heartburn, and act as a mental and financial barrier to ever starting. But never fear, there is a silver lining – one very large protective advantage to your business – in the longer term.
What are these Big Expense Cash Down events? Premises, Staff , Equipment, Marketing, Insurances, Professional Fees etc etc. When you start, you will need premises of some sort. You’ll need essential equipment – often expensive- of some sort. You’ll need professional advice – accountants, legal, web design and marketing. And finally you’ll need staff – receptionists, a manager and maybe a nurse to assist you. All these cost money – up front. Furthermore, many cannot be split in two small fractions. You usually cannot hire half a dedicated manager, design half a website, buy half a piece of essential equipment or rent half your ideal premises.
This is financially stressful because, when starting out on your own, you may have no patient list, no income and you are suddenly looking down the barrel of large one-off and ongoing expenses. And whilst you maybe working elsewhere to supplement income, those expenses such as premises and staff will still be payable in full.
This is the first big disadvantage of going it alone in business – initially, you will bleed money…
It is sometimes feasible to alleviate this issue by “phasing in” to your new business and your new costs. Leasing equipment, for example, is an excellent cash saving strategy. However, for your main expenses – premises and staff – this is less practical.
Sharing premises and sharing staff, even if possible, are short term expedients that usually have significant medium – long term drawbacks. The various mechanisms you may put into place, such as part-time serviced premises, or part-time receptionists, will eventually fail as you get busier and have to be replaced by full-time equivalents. This inevitably causes more expense,time money and stress that had you had the benefit of full-time premises and full-time staff right away.
You will most likely need dedicated staff, not part timers, to effectively grow your business. Shared short term premises are frequently outgrown quicker than you think – and moving entails more cumulative expense than a dedicated start up would have done. If any of these these strategies are a necessary evil that you cannot avoid, then you will have to go down the “phased in” approach.
However, the compromises you will make by taking these “baby steps” will almost certainly cost you more in the long term than simply committing to your new business and going for it. Never underestimate the advantage of a full blown financial and mental commitment from yourself – “burning your bridges and going for broke”.
The second disadvantage is the time penalty incurred. There WILL be a period whilst you delay and procrastinate, all of which costs you in the longer term. These obstacles will certainly slow you down as you consider the consequences of acquiring fixed expenses whilst you have a small, or even non-existent income.
The third disadvantage is that the stress and uncertainty involved in this start up period may ultimately prevent you from ever getting started. We doctors are mainly conservative creatures, and not accustomed to giant leaps into the great unknown. And though it is easy to tell yourself to be confident, it is a very difficult not to be scared, and perhaps ultimately prevented from ever getting started.
So, with all these disadvantages, what is the big pot of gold at the end of the rainbow ?
Well, once again we refer to back to our economist friends . They call these obstacles “barriers to entry”. These are the things that will stop future competitors from joining into the fray, and eroding your profit margins through competition. The very same things that are scaring you to death right now will be your protection in the future.
We discussed above the significant barriers to entry that you are currently facing. In a few years time, these are the same barriers that your would be competitors will also face.
Remember, when you’re successful, there will be many other would-be competitors – your colleagues – who would like a piece of the action. They will look at your successful business and think “I want to do that too”. However, once they look into it, especially at the start up expenses, most will quietly shelve the idea, saying to themselves ” “I can’t be bothered with that business – it’s all too difficult and expensive”.
So my advice to you is this. Take into account the fixed expenses, circumvent them to the best of your capability, but get started as soon as possible. Put up with the necessary evils of high initial expenses, stress, delays to implementation whilst you work around them. But don’t let them stress you out too much, delay you too much, or prevent you from ever getting started.
And finally, remember, when you’re successful you’ll be glad that these barriers to entry exist.
For every one of us who surmounts these barriers, there will be be 10 or more colleagues at the base of the mountain looking up and thinking “I should have done that, but it was just too difficult, expensive and scary…”.
Thank goodness for fixed expenses and barriers to entry. Because they protect you from competition, maintain your pricing power and enhance your profit margins.