What do you do when you need to increase your income to cover the rising costs of living? What about when you lose a job and need to find replacement income to pay the bills? How about divorce or injury and the normal household income decreases significantly? Or if you’re just not satisfied with your current employment situation? Well, if you listen to a lot of people, in particular those on the internet, they will tell you that the best thing to do would be to start a business. They make it sound like it’s something where you just wake up one day and say, “Oh, you know what? I think I’ll start a business today!” and boom, just like that you’re off on the road to riches and financial independence. I’m sorry to say, that’s not how it is at all, and you need to know what you are getting into before trying.
It’s never as easy as some people make it out to be to become an entrepreneur, starting and running a successful business from the ground up. There are reasons why half of all small businesses fail within the first five years, and more than two-thirds are gone within ten years of starting. It isn’t a simple matter of choosing a name, building a website, printing business cars, and wait for the phone to ring and the emails to come in. The bottom line is that no matter what the reason, no matter the state of the economy, no matter what age you may be, or what anyone else says…
Starting (especially running) a business isn’t easy
Let me start off by asking you all a question. With the proliferation of reality shows centered around failing businesses and people who try to pitch their businesses to investors only to get laughed at, does it really seem like everyone should be an entrepreneur? There are more examples of what you see on Restaurant Impossible, Kitchen Nightmares, and Tabatha Takes Over than there are businesses that succeed right out of the box the first time around. There are more people like those on Shark Tank that have great ideas yet horrible business sense than there are entrepreneurs who have everything aligned property for success.
It doesn’t matter how much passion you have for a particular business, how much experience doing what your future business will entail, or how much time you spend watching television shows leaning what not to do. It really doesn’t. None of those things are important for the successful management of a business, either one you built up or one that you took over. And do you know why? Because running a business is more about the behind the scenes action than what the business does in the first place.
In this regard you must understand one key point…
What makes a business successful isn’t what you think
Too many people concentrate on the pretty, popularity indicators like customer and media opinions and gross sales figures. Those things have their place, particularly in attracting new customers with positive reviews and showing a certain level of success with sales figures. However, sales figures alone never equate to a successful business. The key to success is the bottom line-net income (or net profits)- which reduces the sales by all of the operating and non-operating expenses that a business incurs. There are several factors that are important in controlling the bottom line, but three in particular carry much more weight and are often the most difficult for inexperienced entrepreneurs to understand
- Keeping costs of good within reason–If you can’t control the costs of the pieces that go into your product, your profit margin on each piece will be lower forcing you to raise prices to turn a profit (which may drive away customers).
- Billing clients timely and regularly–If you can’t maintain a proper billing system, then you won’t be able to collect on the services you offer.
- Pricing goods & services properly–Choosing the wrong price-points will either drive away customers (on the high end) or short-change the business causing the bottom line to suffer unnecessarily (on the low end)
These are very difficult tasks for some people to master, even those that have previous experience running a business. There are other expenses such as utilities and office-related items, but those are generally more simple to understand and handle. It doesn’t matter how many social media contacts you have or how high your ratings are on various review sites, if you don’t have a net profit when all is said and done, your business is not successful.
Another thing that many people have trouble doing is letting go when it comes to controlling every aspect of a business. Real entrepreneurs, at least the successful ones understand that it’s important to…
You can’t do everything yourself
There a lot of people out there who advocate doing everything yourself, and they could not be more wrong. There simply isn’t enough time to learn how to be proficient at every necessary task, or even enough time to learn or actually do them all. It doesn’t matter if you are thinking about the professional image of your business or the legal and accounting aspects involved, you need to know when to swallow your pride and bring in a business to business expert on that subject matter. Using a professional web designer or graphic artist will lead to a better result than trying to design your own website. Hiring an accountant or bookkeeper will yield better results than you trying to learn a program and doing on your own. Paying a lawyer to draw up contracts will result in more favorable documents that will help you sleep better at night.
If you are the type of personality who cannot give up any control and feels the compulsion to be involved in every single action, then you are going to fail, period. Delegation is important because it leaves you freedom to do what you do best–run your business, not learn about doing things that are totally unnecessary, and potentially damaging if done incorrectly. You should also ask yourself if you have …
Time management is difficult
When you start a new business venture, or even if you buy an existing one, the time commitment is huge. So huge in fact that you will need to rearrange practically every aspect of your life. Well, if you want to be able to find time to sleep, that is. Many people find that running, and especially starting a business takes significantly more time than they have planned for, and many times give up because of it. Additionally, there are a large number of people who are perfectly adept at working within the constraints of an employer-employee relationship, but when removed from that dynamic (working independently) they become less efficient and productive
And that is if you’re the type of person who can budget your time well in the first place. How much time do you dedicate to marketing? How much to developing a business plan? If you are producing a product, what about researching and comparing supply chain resources? Website design? Accounting? Legal? It’s a never-ending list of things that require attention, and there are just so many hours in the day to do it all. Then there is the issue of distraction and the ability to concentrate on what needs to be done rather than any other issues going on in one’s life at that time.
And then there is the biggest hurdle…
Everything costs money
If you want quality, it is going to cost you. It may not necessarily be a ton of money that is needed, but let’s be honest here, do you really want to hand out business cards to potential customers that were printed on a low-quality home printer? Or showcase a website that was built using basic tools by someone with limited skill and knowledge? Will you take a chance that a call on your house phone will be a customer and your kids end up answering? Everything you need to both show a professional and respectful image and costs money.
Now, you may be able to avoid needing to depend on traditional currency if you decide to go the barter route. You can probably get quite a bit done for you in trade, but you must have something to offer those people in return or else it will never work. You must also remember that there are so many things you can barter for: electric, phone, internet, gas all require cash.
It may sound like I’m against people starting or buying small businesses, but the reality is that I am completely for it. The difference is, I am only in favor of it under the right circumstances: the proper motivation, fully thought out and planned, appropriately funded as well as having sufficient savings or other income to offset the time it takes for the business to produce profits, and realistic expectations. A business will not instantly change your life or situation, and in fact, if done improperly can lead to financial ruin and tear a family apart, so please be careful.
This article was featured in Carnival Of Personal Finance: Financial Horror Story Edition