So many people dream of owning their own business. They focus on benefits they could enjoy, including freedom to choose a schedule, pride of ownership, and hopefully big profits.
Unfortunately, according to Innovation, Science and Economic Development in Canada, a whopping 97% of new startups with fewer than 100 employees fail in their first year of operation. Only 85% survive three years and 70% five years. There are approximately 7,000 corporate failures every year.
Even those with years of college education and professional licenses can struggle if they don’t have sound business acumen. From the outside it looks like psychologists, dentists, lawyers, doctors and accountants have made it! The truth is that their fees don’t go directly into their personal savings accounts.
If you think the cost of professional services and expertise is too high, consider the following:
1. Credentials – In addition to tuition fees, books, and living expenses during the many years of university study, many labs and supervised practice situations are unpaid. Earning a parchment diploma and practice license doesn’t just represent success. They also lead to repayment of what can be many thousands of dollars in student loans.
2. Annual Fees – Each year I pay nearly $3,000 to my regulators and insurance agent for licensing and professional liability coverage.
3. Facilities and equipment – Those starting a practice need not only office space, but also suitable furniture and equipment for their profession.
4. Staff – Look around your doctor’s office the next time you have an appointment. How many families receive income from the doctor? Do they get paid when the doctor is on vacation or in training? How much does the professional pay for employee benefits on his behalf?
5. Supervision – The more staff, the more time is needed for mentoring, meetings and system work.
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 costs, and technology costs to run the office.
7. Professional Development – Most licensing agencies require a set number of training hours each year to ensure the professional has advanced skills and knowledge.
8. Accounting – Income tax filing fees and government program requirements must be completed by an expert who usually charges by the hour. Some professionals also have to wait for payments from companies or chase the check when customers don’t pay with cash. It doesn’t take long for the accounts receivable to build up.
9. Taxes and Benefits – Unlike employees, professionals do not have paid sick, vacation, or sick leave. If they don’t work, they have no income. However, they still have to pay both personal and income taxes.
10. Paperwork – Often billable hours are swallowed up by paperwork, administration or other unpaid 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. If you see someone on the golf course in the afternoon, you may not realize that that same professional was in the office until midnight the night before.
12. Accountability – You are the one responsible for ensuring that ethical and appropriate services are provided to the public through all work done by you and your staff. If there is a problem, you are the one to solve it.
Over the years I have worked in government, retail and private practice companies and therefore know that no matter which career path you choose, there are pluses and minuses. If you want to open a business, consider the above so as not to be naive and vulnerable.
When accessing the services of a professional, shop around and remember that the person in front of you will only receive a fraction of the fee you will be charged. The rest goes to business expenses.
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