There are many reasons why a start-up small business fails. Maybe you didn’t understand your market and couldn’t sell enough product or you got your budgeting wrong. But before you get ready to jump back into the small business world, there are two things you need to consider: why you want to do this and what are you going to do.

The first thing I would ask is this: why do you want to set up a business in the first place? If the answer is: “It’s always been my dream to be my own boss”, then that’s good, but sometimes you have to think with your head and not your heart. I have a strong belief that, when opening a business, you should do something that you are good at, not something that you love.

Turning a hobby into a business can be soul-destroying. Something that was your hobby and a steam valve is now your occupation. You do not have that release anymore. I use cricket as my steam valve, but do I want to open a business fixing cricket bats? No, thank you. I know I can do it but turning a passion into a business is not for me.

One thing that worries me when I see business plans for small businesses is that the potential owners do not calculate their prices and costs correctly because they have not given themselves a salary.

This is OK at first, as you are starting off and any profit made should be put back into the business, especially if you have personal savings to back you up for a time. However, it’s important to always factor in a salary for yourself, even just a living salary. If you fail to take your personal expenses into account, your business will fold because of two things. Think of the reason you started the business: wasn’t it to make money and be your own boss? If you do not give yourself a salary, you will not want to make that tough call on a Monday morning to get out of bed. The business needs you as its leader at this stage, especially if you gave up a full-time position to live your dream.

Second, you will eventually need to take money out of the business to pay your living expenses. How are you meant to budget for this if you take money from the till to pay your personal rent payment? Robbing Peter to pay Paul will always expedite the date when you shut up shop and you have to put yourself back onto the labour market that you so badly wanted to leave.

All that said, there are certainly success stories to be found in the small business arena. Remember that without small businesses, there would be no big businesses, so support your friends who open one. You never know: they may come to take over your company one day.

Paul McLardie is a partner at Total Wealth Management. Contact him at