Photo (CC) by BruceBer, on Flickr

A common question I get asked is, “What small business should I start?”

My typical answer is: “Think about starting a business around something that sparks your passion.”

I have a valid reason for giving that answer. The small business you start will take an incredible amount of time. Plus, as you build the business, you will have countless times when you may just want to quit. Those are the times when your passion, or perseverance, will get you through.

Yet passion, while necessary, is not an entirely sufficient variable on which to build a long-term, sustainable small business. Doing that requires that your business makes money.

And the money you make must do more than just pay for supplies. It must cover labor costs, pay for the rent and utilities, and cover taxes, marketing, distribution and the management costs of running the business.

A long-term, sustainable business also will pay the owner for the risk he or she has undertaken, as well as providing a return on the investment.

Finding that profitable business takes time and effort. Ask yourself:

• * Does my product or service have a market? And will that market keep coming back? If so, how often?
• * Will the market pay a price that gives me the profit level I need/desire?
• * Who are my competitors? Do I have a sustainable advantage over them?

Some people can’t offer positive answers for these questions. Yet they still go into business. The reality is the business is more like a hobby. That’s OK as long as you understand what you are giving up and that you will be subsidizing the business in some way through time.

So, what business should you start? It should be one for which you have passion AND makes you a profit.

Photo (CC) by One Way Stock, on Flickr

If starting a business is in your plans, determining your primary reason for such an effort is vital.

You may think that is an odd comment to make because people obviously start a business to make money. That’s true for some, but people start businesses for lots of reasons. Money is not always the primary goal.

So what are some of the other reasons why people want to open a business?

High on that list is to be able to enjoy their passion. These business owners take one of two paths. They may open a business based around their passion. For example, they love music, so they become a private music instructor. Or they may take a completely different path, such as becoming mobile app developer. That job brings in an income so they can live and do what they love, perhaps skiing.

Another reason people want to start their own business is simply to be in charge. They want to be their own boss.

Today we are having more people who start a business because they want to make a difference or are interested in social change. It’s great when they can merge their desire with their passion, but sometimes they simply find an idea to make money that allows them the opportunity to give to a particular social cause and also have the time to get involved in it.

TOMS, a shoe and eyewear company based in Playa de Rey, Calif., fits the former, but as it has grown, it is using its business idea as a means of producing money to support its nonprofit organization. For every pair of shoes TOMS sells, an impoverished child receives a pair of shoes, and when the company sells a pair of eyewear, part of the profit is used to save or restore the eyesight of people in developing countries.

People also start businesses because they see an opportunity or have an idea. This idea might fit with those who have a passion or those who want to make money. However, these people have a somewhat different drive than other small-business owners.

Owners who start a business because they think they can do it better – produce a better product or service, or they have a better production or distribution or management method – typically are much like those who see an opportunity.

There is one final primary group of people starting business. The people in this group are looking for a way to increase their household income.

The businesses they start may be full time or part time. They may want to supplement their income or replace it entirely with a larger stream of cash.

The reasons why someone wants to start his or her own business are many and varied. And each reason is as valid as the next. Plus, each reason can lead to a successful outcome. But no matter the reason for starting a business, it must be profitable in order to survive long term. So making money must remain in your plans, at least as a secondary goal.

It is possible to run a business and not aim to make a profit. But in that case, you actually are enjoying your hobby and not running a business.

 Understanding what you want from your business will help you design and build something that make your dreams real. So take the time to determine your motives.

Photo (CC) by 401(K)2013, on Flickr

It is surprising by the number of business owners who never have taken the time to determine if they are profitable at a basic level. There is money in the bank, so the assumption is that he or she must be doing OK.

Yet money in the bank and making a profit are two different things. So how does a business owner tell if he or she has a profitable business?

One time this difference appears is when it is time to pay taxes. The money in the bank may be inadequate to pay the tax bill.

Beyond that, owners must consider other financial items, such as whether the business can afford to:

• Pay the owner for his or her time spent working in the business
• Pay the owner for the time spent managing the business
• Pay the owner for the risk he or she is taking (or whether the owner is getting a return on his or her investment)
• Create a pool of funds to help maintain and replace the building and equipment
• Build a fund that will pay for growth and expansion if that is desired

While all of these items are beyond the basic profit definition, the business owner must consider them when determining profitability.

If your business is not even covering your costs, and you are completely tracking business income and expenses, it is easy to tell that your business must make changes to survive. It is harder, though, without good records, to determine if you are covering these other items that may influence whether you continue to operate the business.

But what about the other reasons a business owner has for starting and operating a business? Motivators can include filling a local community need, being able to spend time with family, the joy of being one’s own boss, the ability to do something the owner wants or have a lifestyle he or she desires. Perhaps the owner wants to begin bringing other family members into the business as an introduction to entrepreneurship and even as a means of transitioning a family business to the next generation.

Those are important for the owner to consider as well. While they don’t pay the bills, they are reasons why an owner might take a slightly smaller salary or discount his or her return on the risk/reward ratio.

Thus profit becomes only one distinguishing factor when considering business continuity. Certainly, other financial aspects must be factored in, but the more subjective aspects also must be a part of the equation.

As your business looks toward the future, take a complete look at the financial picture and be clear about what else the business is providing you and others.

Glenn Muske is the Rural and Agribusiness Enterprise Development Specialist at the North Dakota State University Extension Service – Center for Community Vitality. Follow Glenn on Twitter: @gmuske