Thinking of starting a business? Before formulating your business idea, it is important to determine the kind business that best suits your goals. To make a decision, first there are many aspects to consider:
- Which industry best suits your interests and expertise? Pet services, food and restaurants, software and computers, auto repair, education, real estate, etc.?
- What business structure best suits your business? A corporation, LLC, sole proprietorship, non-profit company, etc.?
These are common questions for future entrepreneurs, but there is another critical business classification that tends to be forgotten: do you want a business according to your lifestyle or a business with liquidity? You have no idea what I’m talking about? Let’s walk through the differences between them and help you determine which one is best for you and your career goals.
What is a lifestyle business?
The lifestyle business is designed to support the owner’s financial needs and lifestyle. When you choose to operate a lifestyle business, you are not necessarily planning to get extremely wealthy, but rather to build a business that you can build on in the long run.
Although some lifestyle businesses become very lucrative, the goal from the outset is to create a sustainable business that serves as a stable source of income throughout life, rather than growing the business quickly for the purpose of selling or making. customers. Some examples of a lifestyle business include a law firm, auto shop, or local tutoring service.
What is a liquidity business?
Also known as a “startup”, a liquidity business refers to one designed to provide short-term financial gains for its founders and investors. When you launch a liquidity business, you should expect to work long hours for several years in an effort to grow the business quickly. The goal is to sell your business for a profit or go public with a big payday.
To be successful, a liquidity business often requires more personal sacrifice in the short term than a lifestyle business, but it also does not typically require a personal investment of time and resources for a lifetime. The most common startups in today’s market include software companies, mobile applications and game companies, websites, social media, electronics companies, and online marketing services. Liquidity businesses must be structured as corporations, since it is the only entity that allows capital investment, liquidity events and shareholders.
Consider your reasons for starting a business
To ensure their long-term professional happiness, it is essential that future entrepreneurs consider their reasons for starting a new business. Both the lifestyle and liquidity of companies can be labor intensive, but studies show that although entrepreneurs work longer hours, they are also more satisfied in their careers.
Between a lifestyle and a cash business, what type of business is best suited to your career goals? Read on to find out.
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Reasons to Start a Lifestyle Business
If you want to start a business that could support you and your family in retirement while allowing you to participate in the activities you love, a lifestyle business may be the way to go.
One of the main benefits of a lifestyle business is that it allows entrepreneurs a great deal of flexibility in the way they live their lives. Although they generally take longer to start and grow, once a lifestyle business generates a stable source of income, it can allow the owner to take free time for family and travel. For this reason, a lifestyle business can be a great option for retirees or adults planning to support a family.
Plus, lifestyle businesses can reduce financial stress. starting a business. While liquidity founders are liable to other owners and investors, in most cases the owners are the only ones who stand to lose if their lifestyle business fails. While its growth might not be as fast, financial stability and the predictability of a lifestyle business makes it a better option for those looking for a more reliable source of income.
If successful, a lifestyle business too provides a “career” for the rest of your life, while a liquidity business only provides direction for several years, followed by a one-time inflow of cash.
Reasons to start a liquidity business
While a lifestyle business is a great option for entrepreneurs seeking the flexibility to pursue a business they love, liquidity businesses are ideal for those seeking make a quick and hopeful substantial profit.
With a liquid business, the goal is to make money by growing the business quickly and either by selling or going public. If you are thinking of launching a liquidity business, you must be prepared for the effort involved. Along with creating a marketable product, most liquidity entrepreneurs must locate advisers, find investors, outperform their competitors, and hire extremely talented employees within a small budget.
Although most startup founders invest their own money in their business, they also have the ability to seek investor funding, generally in exchange for shares. This is an extremely risky investment for venture capitalists and angel investors, as it offers liquidity entrepreneurs the ability to use the investor’s capital without the obligation to return it if they fail, unlike a small business loan.
Due to the fast-paced nature of the startup world, future founders must prepare to work long hours. While entrepreneurs of any age can succeed in the world of liquidity, a recent study indicated that 40 years was the median age of founders, and the most successful startup owners were between 23 and 38 years old.
Although most startups require a great deal of time and effort in the early stages, if they are successful, founders can see a significant return on investment long-term. That said, the likelihood of an extremely lucrative liquidity event occurring is also very low.
The chances of success may be slim, but for an entrepreneur unwilling to commit to a life-long business project, the fast pace of liquidity deals offers an alternative to the long-term lifestyle business model. While it may take 5-10 years for your liquidity business to succeed (or fail), it allows the entrepreneur the freedom to consider another career or business after their first venture has ended.
Choosing the best deal for you
Of course, there is a certain crossover between the lifestyle and liquidity businesses. Some businesses start as one and grow into another, while other businesses reside in a gray area between the two types of businesses. However, for the most part these are two very different approaches to entrepreneurship, with two very different outcomes.
The most important thing is that you take the time to consider a business that you are passionate about and a structure that suits your professional and personal needs.
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