Back in February 2017 I decided to try out starting a side hustle. As I detailed in another post, it makes a lot of sense to have a two pronged approach to the art of building wealth. The two methods I favour are investing in the stock market (paper assets) and running a business. Coincidentally, this is the very same approach taken by Warren Buffett’s Berkshire Hathaway as explained here. Here I will outline the benefits of business and my progress on an idea.
Benefits of starting a business
- High profit margins. From experience, I have noticed that the return rate on business can be significantly higher than other forms of income generation such as stocks (8x more) or savings accounts (32x more).
- Low capital risk. A 10% annual return in the stock market is considered excellent. This would only generate £1,000 on £10,000 invested. In comparison it can take only £1,620 to generate the same amount for a business which has a 62% return! The proof of this concept is out there – how many multi-millionaires did it without running some kind of business? Bill Gates would not be where he is if he had just decided to buy IBM stock and sat back instead of starting Microsoft.
- You only need one good strike. This one is critical. You can test out several business ideas with little or no capital. All you need to do is strike it once by coming across a good idea. After a hundred failures, it is possible to have a business that works amazingly.
- You call the shots. When running a business you have the ability to run it the way you want. You can optimise your offering, try out new markets, advertise, tweak factors such as product pricing and apply as much effort as you want.
- Learn by doing. It is true that experience is the best teacher. By trying out the business I have learnt a lot in areas such as advertising, market research, shipping, marketing and accounting. Some skills are best acquired by doing rather than studying or watching.
As I have a full time job, the most suitable business path for me at the moment is taking on a side hustle. The main benefit of such a type of business is that it has the potential to generate additional income which can be scaled up without much effort. As I outlined in February, I ventured into e-commerce via the Fulfilment By Amazon (FBA) programme.
To begin, I did some market research to identify a product which I thought would be easy to sell. This took quite a while as there were thousands to choose, which was daunting. Once I had chosen, I ordered a number samples to test the market. The samples were ordered straight from China as the prices where low there. This was an easy process and the package arrived in a few weeks. It is important to keep track of all expenses including for the product, shipping, import VAT and clearance fees.
The next step was to prepare the products for shipping to Amazon. This included creating an optimised product listing on the Seller account, buying a unique UPC (Universal Product Code) barcode, packing the product and sticking barcodes on each item. The tools I find useful and essential for FBA business are the Dymo labelwriter label printer, Pacplus tape dispenser, Barcode scanner and sticker removal kit. Once done, I shipped off the products to Amazon via UPS in July 2017.
Soon after I had my first sale and the products have been selling regularly since. It is also important to track all the fees that Amazon charge for fulfilment. This is a very interesting business method which requires very little effort once the front end work has been done and it offers the benefits listed above if done well.
The main lesson I have learnt is to not dwell too long when finding a product. It is better to do some reasonable research and then start testing samples on the market. As a result I have ordered a second product to test which is more premium and should therefore have higher potential for returns.
Financial independence is all about having a number of streams of income which should eventually surpass your living expenses and therefore render you free from the 9 to 5 by giving you options. I will provide updates on how this side hustle is going in future – you can sign up below to not miss any updates.
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