Mind the three year business gap!

Starting a business, you’ll be gearing up for three years of playing catch-up right? That’s the general rule - the three year business model. In the first year you lose money, somewhere in the second year you break even (phew), and finally in your third year you actually start making a profit (yay!). But does it really have to be a three-year slog to financial success?

Yes, the first two years you’ll have to roll up your sleeves, take some punches and give it all the elbow grease you’ve got. But business has come a long way in recent years, and it doesn’t necessarily follow traditional norms any more. So where does the three-year cycle come from?

It actually refers more to the process of becoming an entrepreneur, not so much building up a business. Getting a solid clientele up and running is a time-consuming process which is made even harder if you’re fresh on the scene because you’ll likely be missing three advantages that add momentum to any business; a reputation, a network, and existing customers.

Those miracle workers who get business up and running in a matter of months are generally experienced business people; they know how to hustle sales, what to do in any situation and bring an existing network and reputation. So how can you keep yourself afloat in the first three years as a newbie?

1. Give everything you’ve got for a bulletproof reputation

Building incoming customer momentum is your first step in beating the three year gap. Of course, everyone still runs in negatives for a while. There’s no getting away from an exhausting first year, so you may as well give it your all from the get go. Once you get that first customer or two, you’re on the way. One leads to another, which starts to build your network.

The key? You want them to sing your praises to their friends, and their friends’ friends. Happy customers will come back, bring others in and cement that sparkling reputation you’re after.

2. Don’t quit your job until you’ve got enough money to run for eighteen months

Of course, ideally you’d make some money back before eighteen months, but this is the real world and things aren’t that simple. Any entrepreneur will tell you they learned more from their colossal mistakes than from their easy wins.

Hand in hand with this is checking the demand for your work before you start. If you can forecast a decent amount of work or a certain list of customers before you start - fantastic. That means you’ll make a start with something, not entirely from scratch and on your own.

Also, don’t be put out by the prospect of a couple of tricky situations. Just make sure you have the cash to back yourself when they happen. Sometimes the demand dries up, people don’t pay and there’s always the good old economy and its tricks. That’s when it’s best to have something to fall back on.

Business insurance is also important to help you get back on track after an accidental loss or damage. With AMI Business Interruption cover, you could be covered for lost income whilst your business is getting fixed up following an incident. It could also help see you through until your business is back up and running. You can read all about that handy cover here.

3. If you can’t wait, call it a side hustle

If you’re really not in a financial position to take on the world on your own just yet, but the time is ripe to share your idea with the world - keep your day job, and start your company in your spare time.

This isn’t ideal because in the perfect world, you’d have all your energy and attention on your new company. While you can’t do that, you can take your time to start slow and make a couple of mistakes without finding yourself out of pocket and unemployed.

That way, when things do start to pick up you can quit when you’re ready and dive in head first having hopefully ridden out the first bumps in the entrepreneurial road already. Once you’ve got number two taken care of, three underway and have your teeth gritted for number one, you’re away!

This article is a general guide only and should not be relied on in any way. It is not intended to take the place of professional business or legal advice.