I have a great idea but is it a for-profit business?

Dear Aunty B,

I am just starting out in my parents’ backroom with two mates from university.

We have a great idea and have workshopped it through our course.

The problem we are dealing with is that our lecturer who has helped us is talking to us about setting it up as a not-for-profit which makes a great contribution to society (and we wouldn’t have to pay tax) but my mum who runs a successful business says we should make it a for-profit. Which is the right way to go?

Mei,

Melbourne

Dear Mei,

Your thinking is completely muddled. I have no information about the business so I am not sure if your lecturer is trying to tell you it’s just a hobby that wouldn’t cut it in the real world. And that’s the point. What is your ambition with your business? Look five years down the track and what do you see? Are you still in your parents’ backroom? Or do you see a growing business with staff in an office?

You see the latter don’t you? So, of course your mother is right. After all, who is running the successful business? Your mother or the lecturer? That doesn’t mean your lecturer can’t give you excellent advice. But you need to drill down and see the real reason you are being given that advice.

A not-for-profit structure is OK if you are running a charity. But if you want to run a fast-growing business then it is absolutely the wrong structure for a lot of reasons.

There is another great thing about for-profit business: it focuses you on making money. Think of this. The main way you grow a business is to reinvest the profit. That way you employ more people. And, most importantly, you stop yourself burning out.

So it’s back to the drawing board.

Be smart,

Your Aunty B

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