So many people have dreams of owning their own business. They focus on the benefits they can enjoy including freedom of choice of schedule, pride of ownership and hopefully big profits.
Unfortunately, according to Innovation, Science and Economic Development in Canada, 97% of new start-ups with less than a hundred employees fail in their first year of operation. Only 85% survive for three years and 70% for five years. About 7000 business bankruptcies occur in a year.
Even those with years of university training and professional licenses can struggle if they don’t have good business sense. From the outside it may look like the psychologist, dentist, lawyer, doctor, and accountant who made it! The truth is that their fees don’t go directly to their personal savings accounts.
If you think the fees for professional services and expertise are too high, consider the following:
1. Credentials – In addition to the registration fee, books and living expenses for years of university study, many practicums and supervised practice situations are unpaid. Earning a parchment degree and practice license doesn’t just represent success. They also trigger payments of what can be thousands of dollars in Student Loans.
2. Annual fees – Each year I pay nearly $3,000 to my regulatory agency and insurance agent for professional licenses and liability coverage.
3. Facilities and Equipment – Those starting a practice need not only to have office space but also appropriate furniture and equipment for their trade.
4. Staffing – Look around your doctor’s office when you make your appointment. How many families receive income from doctors? Are they paid if the doctor is on vacation or in training? How much do professionals pay on their behalf for employee benefits?
5. Supervision – The more staff, the more time needed for mentoring, meetings and work systems.
6. Monthly expenses – In addition to interest on business loans, office rent or mortgage payments, and staff salaries, there are utility bills, office supplies, cleaning fees and technology costs to operate the office.
7. Professional development – Most licensing bodies require a certain number of hours of training each year to ensure that the professional has up-to-date skills and knowledge.
8. Accounting – Fees for Income Tax filings and government program requirements must be completed by an expert who usually charges an hourly fee. Some professionals also have to wait for payment from the company or chase checks when clients don’t pay cash. It didn’t take long for Accounts Receivable to pile up.
9. Taxes and Benefits – Unlike employees, professionals do not pay for sick leave, vacation time, or sick time. If they don’t work, they have no income. However, they still have to pay personal taxes and income taxes.
10. Documents – Often what could be billable hours are eaten up by unpaid paperwork, administration or other tasks.
11. Time – Don’t be fooled. Starting and running a business takes a lot of time. Most successful entrepreneurs work long hours, many of which are never seen by the public. When you see someone on the golf course in the afternoon, you may not realize that the same professional has been in the office until midnight the night before.
12. Accountability – You are the person responsible for ensuring that ethical and appropriate services are provided to the public by all work performed by you and your staff. When there is a problem, you have to deal with it.
Over the years, I have worked in government, retail, and private practice businesses and therefore know that whatever career path you choose, there are pros and cons. If you want to open a business, pay attention to the things above so that you are not naive and vulnerable.
When you access the services of a professional, look around and remember that the person in front of you will only receive a fraction of what you charge. The rest is for business expenses.