Business Problems and Business Risk Management
10 Things They Don't Always Tell You About Going Into Business for Yourself
Many good arguments can be made for going into business for yourself. Those of us who are dedicated to helping people get and stay in business can talk all day about them.
We also know, however, that there are some things that are not mentioned by many of those who promote small business. Listed below are ten things they don’t always tell you.
1. They don’t always tell you that you should think of a way out of your business.
When you start a business, you are optimistic and full of hope. You know you will succeed. Few will tell you to think of how you plan to get out of it. Actually, it is smart to consider your exit strategy even before you start. Sooner or later you will get out of business. You will either fail, sell, die or get out of it in some other way, but you will eventually get out. By thinking about this when you start, you have a more complete picture of the whole process.
This is not to suggest that you must have a complete plan for getting out in each of these situations, but that is not a bad idea. If you fail and must close your business, which statistically is more likely than not, how will you handle it? What will you do? Will you take bankruptcy? Will you lose most of your personal assets? Will it ruin your life?
If you are hit by a truck and killed, what will happen to your business? How will your heirs handle it? Will they be able to cope? Will they have to take bankruptcy? If you grow tired of the business grind, will you sell it or liquidate it? Will you be able to sell it? How will you liquidate it?
These questions are usually not raised during start-up, but they should be. You should have some idea of how you will exit your business ownership under various circumstances. The advantage of having at least a general plan for exit is its beneficial effect on your emotional state when exit becomes a possibility or reality. Think about it. If the ceiling starts to fall in on your business, having an exit strategy will prevent you from wringing your hands and thinking, "I don’t know what I am going to do now." You will know what to do.
Having an exit plan also has benefits because it often causes you to operate your business differently. For example, if part of your exit plan is to sell the business, you will do things that will maintain the financial health of the business. The income statements and balance sheets make up the financial history of a firm. A future sale is enhanced if these statements look good. Your day-to-day decisions in operating your business influence these statements.
2. They don’t always tell you that most small start-up businesses can’t afford debt.
The reality of small business start-ups is that money is usually scarce and costs are high. Coupled with these is significant competition in most areas of business. Customers you seek to serve are already getting by without you and your business. Here you come with a new business. You want them to change their ways from trading with others to doing business with you. To accomplish this, you have to put out money to get your business set up and running. You have to spend more on advertising and promotion to let them know about you. You have to suffer with less revenue because they don’t know you very well yet. So you are spending more than your competitors and you are taking in less revenue.
This is the picture WITHOUT debt. If you add debt, now you have the interest expense to pay plus setting aside money for principle repayments. It is difficult enough starting up without this principle and interest burden. The debt makes it much more difficult because not only do you have these payments to make, but if you falter, you can lose everything. To get the debt in the first place, you will probably have to pledge everything you have in your business -- and probably your personal things as well.
Advice: Start your business with as little borrowing as possible. None if you can do it. If you borrow most of the money the business needs -- meaning that you are providing little of it -- your chances of success are much reduced. You chances of losing a great deal are substantial.
3. They don’t always tell you that the market place is very unfriendly.
You know that ours is a free enterprise system and that you will be facing competition in the market. This means there will be other businesses out there who want the same customers you want. What they sometimes fail to tell you is that competition is not at all friendly -- and neither are the customers.
Competitors want you out of the picture. They will undercut your prices, advertise that you are inferior, tell the customers you are bad, try to do things for your customers that you can’t, and anything else that will give them advantage. Many will run deceiving advertising to beat you or use dishonest or unlawful pricing practices. Some will lie to your mutual suppliers about you. The tricks and dirty practices that businesses use against other businesses are many and varied.
The longer you are in business, the more of these tricks and shady practices you learn. Usually you learn by having a competitor use them against you. "Unfair!" you shout at first. "They can’t do that!" you insist. "There is a law against that". You will be correct, but they will do it anyway. To stop them usually takes more money and effort than you are willing to spend. What happens is that you end up either ignoring their practices -- and suffering in the process -- or you fight fire with fire. You employ some of the same tricks and shady practices. You run your own deceptive ads or use your own unlawful pricing practices. You get into dog fights. In such fights, the big dog often wins. As a new business start-up, you are usually not the big dog.
Your market is also made up of customers. Customers care little or nothing about you or your business. They are in the market to get the best they can at the least cost. They will shop around, skip from business to business, jump at your promotions, but buy nothing else, and do anything else that is to their selfish benefit. They will trade with you only if you give them some good reasons to do so -- the best price, the best quality, the most convenience, or whatever they happen to want -- and they will quit trading with you just as soon as they locate another business that does it better. They have no loyalty, don’t care if you make a profit, and will take every advantage from you they can. Some will cheat you at every opportunity and many will steal from you. If you go out of business, they will come to your going-out-of-business sale, stock up, and be happy about the benefit you gave them for failing in your business.
4. They don’t always tell you that you have to know a lot.
Franchise advertising is especially good at telling you that "anybody can do it" or that "you can learn how with only two days of training." "No experience needed. We will train you." "All it takes is hard work." Advocates of small business are sometimes just as guilty of leading you to think that starting and running a small business does not require much knowledge.
All too often, this misleading advice is coming from folks who have never done it. They have never started or operated a small business. Some educators are guilty of giving bad advice about knowledge requirements because they have learned much over a period of years studying business and they project this knowledge to you; or they think you can pick it up quickly simply by listening to one of their lectures or reading one of their books. Even some Small Business Development Centers can be faulted for painting this knowledge requirement picture with vague colors.
Make no mistake, running even a very small business requires knowing something about a lot of things. There are, to begin, the technical skills of the business. Then there are the business practices skills. Added to this must be knowledge of the market and the customers. Knowledge of the competition and the economy is also necessary. Knowledge of technological developments in your area is important.
Within each of these areas, the list is long of the things you need to know. In just the business practices area, for example, consider these:
Knowledge of advertising methods, costs, and media.
Knowledge of bookkeeping, accounting, and taxes.
Knowledge of production and distribution costs and practices.
Knowledge of employment laws and employee training.
Knowledge of legal issues and government regulations.
Knowledge of sources of supply, buying practices, and terms.
From a knowledge standpoint, working as an employee for someone else and working as the owner/operator of your own business are worlds apart. As an employee, your knowledge requirement is usually confined to a single area of business. As a business owner, your knowledge requirements must cover every area of business and all aspects of it.
Ask those who have failed in small business. They will tell you that their failure was caused by, or helped along by, their inability to cope with one or more problems. Not enough cash. Could not borrow more money. Customers would not buy. Suppliers would not ship. The IRS was unreasonable. Employees were incompetent.
Underlying all of these reasons for failure was a deficiency in knowledge about what to do in these situations. This knowledge deficiency prevented them from properly recognizing and analyzing the problem. This knowledge deficiency prevented them from considering alternative solutions or picking the best solution. This knowledge deficiency prevented the foresight that is important in anticipating business problems. Rather than seeing something coming, a cash shortage or customer problem hit them hard without warning.
All businesses face these difficulties. Those operated by knowledgeable people are better able to anticipate and see what is coming. Those with knowledgeable people are better able to cope and solve problems. Those without, flounder and fail. Some of the failures knew they didn’t know. Some don’t even know they didn’t know.
5. They don’t always tell you that doing specialized work and operating a business that does that specialize work are as different as night and day.
Most people who start their own business are employees, working for someone else doing some specialized task. They are mechanics, food service workers, electricians, accountants, teachers or sales specialists, to name a few. When these people go into business for themselves, they often start a business that does the specialized work they know. An accountant will start a bookkeeping service. A mechanic will open a garage. A food service specialist will open a restaurant.
Many small businesses are started primarily to create a job for the owner. An unemployed nurse may start a home care service business to create her own job. An unemployed teacher may start a seminar training business in order to have a teaching job.
Most of these folks think that if they know how to do the specialized work, they know how to run a business that does that specialized work. This thinking is wrong. Doing specialized work requires certain skills and knowledge. Running a business that does that specialized work requires different skills and different knowledge. One is concerned with doing specialized work. The other is concerned with running a business. The two are not the same.
One of the saddest facts in American small business is that this reality is not discovered until the specialist fails in his or her own business. And even then, many do not understand the difference.
6. They don’t always tell you that bank loans, government loan programs and other small business assistance programs are for a select few.
If you listen to the advertising by banks and government agencies that is directed at small business, you might get the impression that getting loans or government loan guarantees is easy and for everybody who asks. Not so on either count.
They are not easy to get because of the preparation that is required. They are not for everybody because there is always a list of qualifications to meet, such as equity requirements, collateral, business plans, profit and cash flow projections, etc. etc.
If you take all of the people who would like a small business loan or a government program, most of them will not even apply because of the requirements. They can’t meet the requirements or won’t go to the trouble to try. Of those who do, only a fraction will succeed. More often than not, they will not succeed. They will fail in their preparation or will become discouraged because they didn’t know it would take so much effort. Those who succeed are the select few. They are the few who receive the benefit.
7. They don’t always tell you that you MUST understand numbers to run a business.
Numbers are the language of business. Virtually everything in business is reduced to a number for understanding. Business results are reported with numbers. Bankers think in terms of numbers. Products are sold, supplies are purchased, and taxes are paid -- all using numbers. It is difficult for business people to talk about business without talking about numbers.
True, you don’t have to know accounting or bookkeeping to run a small business. But you MUST KNOW YOUR NUMBERS. You must know your cash numbers. You must know number relationships, such as how much gross profit numbers you need to cover your expense numbers; or what your price numbers have to be to pay all of your cost numbers. These basics are the lifeblood of business. You can’t make good decisions in business if you can’t make good decisions about numbers; and you can’t make good decisions about numbers if you don’t understand them.
8. They don’t always tell you that you have to sell.
I was once told by a client that she wanted to have her own business, but she didn’t want to sell. She hated selling. There are a lot of people like her. They look upon selling as something they can’t do or don’t care to do. Many feel that it is a skill they do not have and to attempt it would be to fail.
In business, it is often said that nothing happens until a sale is made. A sale takes place when a customer decides to give you money for the product or service you are offering. The customer will usually not do this without some selling effort on your part. If there is no selling effort, the business you get will be small and infrequent. To be sure, there are many small businesses that have little or no selling effort. There are small retailers who open the doors and wait for customers to come in and buy. A few do, but usually not many and not for long.
The more competitive your particular business environment, the more selling you must do to get revenue. The more options and alternatives your customers have -- and they usually have many, the more they must be sold with skillful selling techniques. To start a business and ignore the need to sell is similar to building a house and ignoring the need for a roof.
9. They don't always tell you that nobody cares about your business.
The new business owner is filled with enthusiasm for the new business. A great deal of time, effort and money went into starting this business and it is a great business! It is going to make money and be vary satisfying to the owner. You will be your own boss and call all the shots. You will not have to share the profits with anybody and you can run things exactly as you please. What a great country this is that permits an ordinary person to do this.
What they don’t tell you is that you are probably the only one who cares about your business. If you tried to get a bank loan, you discovered that the banks don’t care about your business. If you applied for a government program, you learned that the government didn’t much care. If you tried to find a private investor, you learned that they didn’t care. If you don’t follow the rules of the IRS and other government agencies, you will find that they don’t care either.
And the saddest discovery of all is when you find out that the customers don’t care either. Oh, sure, a few may seem to care at first, but they are more curious than caring. Your relatives may give you some business, but their caring is motivated not by your business, but by your personal relationship. For the most part, your customers don’t care a flip about your business. The only way they will do any business with you is if you offer them more value than what their cost could buy them elsewhere. Not only that, but you must go to the trouble and expense to tell them what you can do for them. Not only must you tell them, but you must sell them -- convince them. You must overcome their many reasons for not doing business with you.
If you go into your business believing that anyone other than you really cares about your business, you are in for a big disappointment. If, on the other hand, you accept the fact that nobody cares, you will do the things that need to be done to find, inform and sell your customers.
Even if it were not true that nobody cares, you are best advised to assume they don’t care. By assuming this and going into business anyway, you will be motivated to organize your business, to design your advertising, and to offer your product or service in such a way that you convince customers to buy. You will make things happen in spite of the fact that nobody cares.
10. They don’t always tell you that your ability to convince others is critical to your success.
In business, you are continuously working to convince others to do your bidding. You must convince the banker to loan money to you to start. You must convince the landlord to lease you office space and convince suppliers to give you thirty days credit on your purchases. You spend a lot of time convincing customers to trade with you, and then convincing them to pay their accounts on time. If you have employees, you strive to convince them to follow company policies, treat the customers well, and don’t steal from your company.
The job of convincing others to agree with your views is a never-ending part of business. If you are good at it, running your business is much easier than if you have trouble doing it.
Training and practice in negotiations, communications and human relations is very helpful if you aren’t already a good convincer.