So many people have lofty ideas of what it means to be a business owner. Some think it equates to automatic riches, and others think that just by “opening shop” the customers will come. Neither could be more wrong assumptions, and sadly it is a lack of proper planning that causes greater than 50% of small business to fail within the first 5 years (according to the Small Business Administration.)
I have been an entrepreneur for most of my life. I have owned, managed, and sold several businesses over the past two decades and I have learned most of what I have learned from the “school of hard knocks,” and it is from those experiences that I want to share some tips for anyone considering starting a business.
1. Start Part Time. If you have a job that pays your bills and provides you with benefits, I highly recommend keeping that income source while you build your business. Chances are you will not have enough initial business income to pay for your benefits, so you will go from having benefits to not having benefits, on top of going from having an income from a stable company to not knowing where your next check is coming from in many cases.
If you are starting a business in the same field that you are employed in, this might not be possible due to actual or perceived conflicts of interest, in which case you need to make sure you are prepared in every other way as you will read below.
2. Get Out of Debt First. Having debts means you need to take more money out of your business to pay your bills, which reduces the chances of the company surviving. This is another great plug for starting part time, because you can use that income to pay off your debts prior to making the leap from your job to your business.
3. Maintain a Solid Personal Credit Rating. While it is possible to get business credit, most investors and banks will want to either have your loan secured by collateral (often the house you live in), or they will want a personal guarantee. A personal guarantee basically means that you would agree that if the business fails, you will still personally pay back the loan. If you have bad credit, they will not lend you money based on a personal guarantee.
4. Talk to a Business Start up Coach. Your expertise is crucial to the success of your business, but you also cannot succeed in business without having a marketing plan, knowing how to structure the business, and knowing how to maintain your business finances. These are three areas where many business owners either fail or neglect and it can be very costly to backtrack and try to get help in these areas. This is where having a business coach can help. Have them all ask you the hard questions and then make sure you have the answers before launching out. Any money you spend with a business coach in preparation to launch your business will be well worth it in the long run and could be the difference between success and failure. I am happy to offer you a complementary start up business consultation to help make sure you are pointed in the right direction. You can contact me to set one up if you are interested.
5. Have a Business Plan. Whether you plan on raising money or not, you need to have a business plan. There are many reasons, but if you have a solid business plan, it will serve as a guide to keep you on track. Also, even though you may not want to raise money, you may find that it makes sense to and going back to the drawing board will be a setback because you will have to stop or slow down actual production to write the business plan or pay someone to do it.
6. Do Not Operate as a Sole Proprietor. Let me start by saying I am not a lawyer and this is not legal advice. The basis for this is that fact that you will not be able to establish credit as a business without having a legal entity, even if you have a separate Tax ID Number for the business. Because I had started one of my most successful businesses as a Sole Proprietor, I later made the mistake of starting another similar business as a Sole Proprietor. The difference was that I was building this business more aggressively and without business partners, so the need for business credit was much greater from the outset. It took me over a year to realize that I was off track and it cost me a year of business history because creating a new entity meant that essentially the business was new from a business credit standpoint.
7. Don’t Forget Hidden Costs When Setting Your Prices. Many small business owners price their products and services with an employee mindset, meaning that they have an idea of what they want to make and set out to calculate what that looks like from a consulting standpoint, but they often fail to forget many expenses. The most common are taxes, administration, and technology. A good rule of thumb is to determine how much money you want to earn per year as personal income and double that to estimate how much money you want the business to bring in.
8. Remember, You Always Have Work. If you don’t have clients, your job full time job is finding them. Your phone should always be ringing, if the calls are not coming in, make sure they are going out.
9. You Will Have to Work Harder As a Business Owner Than an Employee. There are some who will disagree with this statement; they are called “former business owners who are once again employees.” Trust me, even if someone gives you a $100,000 loan, you will need to do everything to can to turn that into $300,000 in order to pay it back and still make a profit. And if you aren’t willing to work hard, there are others who will do it for you… they are called competitors.
10. Guard Your Time Wisely. I believe in working hard and playing hard, but if you aren’t making money, you will never feel free to take time to play. There are so many potential distractions to your work day, that you really need to have a daily plan to stay on task. When you start your day, make a list of the tasks that you need to accomplish for that day. Two things in particular that I recommend being cautious with are phone time and Internet time. If your friend calls you in the middle of the day, the best course of action is to not take the call and call them back after your work hours. This will condition them to not call during your work day, and also it will help them see you as a business owner and not just someone who quit their job recently. With Internet time, there is a temptation to spend time online and call it work. The simple way to figure it out it to stop and ask yourself how the last 10 minutes online contributed to your businesses growth. If it didn’t, make sure whatever activity you were doing stay off of your work time to do list.
I hope you found these insightful. If you take them to heart, you will increase your chances of success. It is far less costly for you to learn from my past failures than to go out and waste your money to learn the hard way. If you disagree with any of these, or have any questions, post a comment below and I will gladly respond.