Entrepreneurs must be prepared to face failure

Managing overheads and ensuring a steady cash flow, even if it means holding down a salaried job, could reduce the odds of your new business going bust.

Rent, storage, transport and salaries are among the overhead costs that can drag a new business down.

A supplier I once used had a business model that was as unique as it

was hard to replicate. Mr Maharaj had a vast warehouse in downtown Johannesburg filled with cheap stuff that hardly anyone wanted.

His shelves were crammed with things like misspelt humorous greeting cards and pencils with plastic smiling heads. Every year Mr Maharaj would travel to India. He'd visit factories and select those items that had production managers sitting back and saying, "Now why the heck did we think it was a good idea to make these?"

Over time, his warehouse would fill beyond capacity and Mr Maharaj would have a fire sale. Literally. Every three or four years his warehouse would mysteriously burn to the ground. Soon afterwards, insurance cheque in hand, he'd rebuild it and set off to India on another buying trip.

This system worked until the most recent conflagration, when men bearing official status showed up and asked him hard questions even before the smoking ashes had properly cooled. So Mr Maharaj decamped hastily to India and set up a factory, where he now manufactures misspelt humorous greeting cards and pencils with plastic smiling heads.

Mr Maharaj lived by the first rule of entrepreneurship - always have a backup plan (although he might have argued rule one was "don't get caught").

Self-employment is now an option for many people in a way that it has not been for generations. The path of a good college degree to a well-paying job is no longer certain, or even possible for many of us. The common figure given is that half of all new businesses fail in the first year. Over five years, the statistic is even more dismal - 95 per cent are expected to go to the wall.

I've played Captain Smith to my own share of entrepreneurial Titanics: a coffee shop (instant failure), a book store (slow bleed) and property speculation (spectacular crash-and-burn).

My latest ventures will hopefully avoid the humiliating and expensive disasters of my other forays into self-employment.

The number one killer of small businesses is lack of cash. Even a profitable idea will fail if starved of a constant diet of green to keep it healthy. There are plenty of studies to show that few businesses make a profit until they are at least two years old. This means a heady 24 months of paying bills, suppliers, rent, transport and marketing - all of which must come from your own pocket.

All of this must be accomplished in tandem with paying household bills - school fees, mortgage, insurance and membership at the golf club.

Banks are never very enthusiastic about making small-business loans at the best of times, and these days getting an appointment with a loan officer who won't laugh - or weep - at a request for money is increasingy difficult.

Personal savings, that quaint concept that old people mention in the same breath as one-penny pint milk, is also unlikely to provide much of a cushion. Experts say to have at least six months' expenses in hand before venturing out alone.

Yeah, right.

One way to manage cash flow is to start small, and slow. Not for nothing is eBay such a huge success. It allows individuals to buy and sell goods without the vast overhead of a retail space and the burden of a large inventory.

Another is to keep working. Many small entrepreneurs hang on to their day jobs while toiling in garages and flea markets on weekends. This at least takes care of household expenses and keeps overhead to a minimum. And the learning curve, those inevitable mistakes we all make as we start out anew, are less likely to be financially ruinous with a steady salary to help smooth things along.

It also pays to work with others. Instead of setting up a store, become a supplier to those who already have one.

Finally, be prepared to fail. It takes a thick skin to pick up and move on after a business has gone belly up, but be ready to cut your losses.

A great many entrepreneurs will have a few horror stories of early financial catastrophes. These, however, only serve as the bedrock of experience from which to build something new.

This is why a backup plan is always useful. Have something else to turn to when your business comes crashing down around you.

And yes, keep your fire insurance up to date.