Starting a Business- Motivations

Starting a Business

A blog for businesses with 20 or fewer employees or for people planning on starting one. There are two threads. One for Starting a Business and a second for Growing a Business.  Author: Henry McCabe.

If you are reading this, you are probably thinking about hanging up a sign- Coming Soon- My New Business.   Starting one is a multi-step process. The first step is to make a realistic assessment of your
readiness to do so.  The last three blogs suggested assessing: your knowledge base of business issues (2/8/14), your ability to finance the start and early years of the business (2/13/14) and your willingness to tolerate the risk inherent in starting a business (2/21/14).

Assessing your readiness - Motivation

The fourth question you should answer for yourself  concerns your motivation for starting a business. What motivates you?  What to do expect to get out of being a business owner? Motivation should leads to goals. Do you have specific goals for the business? Are your goals realistic? Here are some dreams I have heard from clients and the reality they will find after they get going.

Motivation: I won't have to work the long hours I put in for my present employer and I can take all the vacation I want.

Reality:  A Wells Fargo/Gallup Small Business Index survey found that today's small business owner works an average of 52 hours per week, with fifty-seven percent working at least six days a week, and more than twenty percent working all seven.  Owners surveyed take an average of two weeks of vacation  per year, with fourteen percent not taking any vacation at all. Of those taking a vacation, thirty-nine percent do work-related activities (phone calls, emails, etc.) during that time. http://www.prnewswire.com/news-releases/.

Motivation: I will no longer have to put up with 'guff' from my boss and his boss.

Reality: Every customer that walks in the door,in person or virtual, will be a boss that may give you guff. Then there are your vendors and landlord. You will find that they are often the boss, not you. Plus the local zoning board, tax assessor and tax collector;  state tax collector, labor department and office of corporations; and the IRS and sundry Federal departments. Worse yet. You will be the boss having to give employees guff and getting some in return. A small business owner has no end of bosses. Source: personal experience.

Motivation: Within months I'll be making boodles of cash.

Reality: It is not as easy as that. Data about proprietorships provide a pretty good picture of small businesses. The average revenue of  17 million U. S. proprietorships in 2010 was $64,700 and average net cash flow (which equates to the owner's take) was $20,300. Surprised by those numbers? Many are. You are going to have to be way above average to be making boodles of cash in just a few months or ever. Source: IRS statistics. Also take a look at the business survival graph in my last post (Feb 21, 2014).

Be Realistic: Independence, being your own boss, pride of ownership, the ability to help others through with a product or service, creating your own job, making money from what is now a hobby, seeing a creative business idea taking off and many other reasons are legitimate motivations for starting a business. Put making a good living and building some personal wealth at the top of the list. Be realistic about whatever drives you to do it. Investigate realities and plan, plan, plan before you launch.

More about goals and planning in the next post.

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Starting a Business

Starting a Business

A blog for businesses with 20 or fewer employees or for people planning on starting one. There are two threads. One for Starting a Business and a second for Growing a Business.  Author: Henry McCabe.

If you are reading this, you are probably thinking about hanging up a sign- Coming Soon- My New Business. Starting one is a multi-step process. The first step is to make a realistic assessment of your readiness to do so. An earlier blog suggested assessing your knowledge. Do you know what you need to know? The last blog suggested assessing your finances. Do you have the cash to start a business and keep it going going through the early lean times?

Assessing your readiness.

The third question a nascent business person must answer is:  Am I willing to take the risk inherent in starting a business? As can be seen from the graph below, half of businesses started are no longer operating after five years. That does not mean that 50% of the businesses had a dramatic end through liquidation in bankruptcy. Many quietly close the doors because the business did not meet the founder's personal cash flow requirements. Often at the end of an initial  lease term or other commitment when the owner concluded that it was not worth soldiering on. Some are acquired or merge with other business or are sold and continue to operate under another name. Still, the odds are against a start up being a long term successful business. In these cases the founder risked, and lost, his investment of cash and something even more valuable- years spent during which he could have earned income working in somebody else's business.

Link to SCORE Tools

That is the bad news.  The good news is that 16 years after starting 25% of the businesses started  were still going. There is a high probability that the owners of those  businesses had years of high earnings and are getting ready to sell off, or pass on, a valuable asset.  They looked at the risk of failure (one hopes), decided to take the chance and won the prize.

Think about this question- Am I willing to risk my money and months or years of my life in the face of these odds? And another very important question- If I do decide to go ahead, is there a way I can minimize the risk?

 

Starting a Business

Starting a Business

A blog for businesses with 20 or fewer employees or for people planning on starting one. There are two threads. One for Starting a Business and a second for Growing a Business.  Author: Henry McCabe.

If you are reading this, you are probably thinking about hanging up a sign- Coming Soon- my new business. Starting one is a multi-step process. The first step is to make a realistic assessment of your readiness to do so. The last blog suggested assessing your knowledge base. Do you know what you need to know?

Assessing your readiness.

The second question a nascent business person must answer is:  Do I have the wherewithal to get the business going and keep it going until it meets my financial goals?

All most all new businesses  need capital to get going. Some less, some more. Money for all sorts of things.
Here is a list for you to think about- some may not apply to your situation but many will: land, buildings, leasehold improvements, equipment, furniture, fixtures, vehicles, other tangible assets, pre-opening wages, prepaid insurance, inventory, accounts receivable, organizational expenses, rent deposits, utility deposits, supplies, licenses, advertising collateral, web site design, other intangible assets and some cash in the till. Rare is the small business that will find an investor or bank that will put up the money to finance all of this.  Most of the money will have to come out of your own pocket. Do you have enough or even any? If not, you will have to defer your plan until you have enough put aside.

Once you get the doors open another need for cash arises. It may be some time before the  business is self sufficient. Vendors and employees must be paid even if the business is not generating enough cash flow to cover the cost. If you were lucky enough to qualify for a bank loan, you must keep up with the payments on it or the bank will call the note and drive you into bankruptcy court.  Your landlord will be knocking on the front door if he does not get his check. You will need some working capital to cover these expenses until the business can pay its own bills. Then there is the home front.  It is quite common that the owner of a new business is the last one to be paid for many months. Your mortgage or rent payment will not go away. Nor will grocery bills, auto expenses or new shoes for the baby.  If your pockets are emptied out with start-up expenses, you will be in trouble from the get go. You need to set aside cash or have another income to cover your personal expenses until you can draw money from the business.

If you do not have enough money of your own, cannot find an investor and a bank will not loan you money just because you promise you will pay it back, what will you do? Well, the traditional way is to borrow against an asset. What asset? A home. Hard to do if you are like this poor homeowner. You need to look at whether or not you have equity in your home, and decide whether or not you are willing to borrow against it to start a business. A risky proposition.  Risk will be the topic of m my next blog.

Starting A Business

Starting a Business

A blog for businesses with 20 or fewer employees or for people planning on starting one. There are two threads. One for Starting a Business and a second for Growing a Business.  Author: Henry McCabe.

New Thread

With this blog I am starting a new thread addressed to people who want to start a small business.  In a series of posts I plan on covering the following topics: Assessing your readiness  ●  Defining your  business idea  ●  Creating  your marketing plan  ●  Legal and tax issues  ●  Managing your  business finances  ●  Facility, staff and operations  ●  Making your financial projections.

Assessing your readiness.

The first question a nascent business person must answer is: Am I really prepared to make a go of my proposed venture?  Do I know what I need to know? A small business owner must juggle a lot of balls. Dropping just one of them can doom his venture to ultimate failure. Just take a look at some of what you will be called upon to do.

                                     

You will have to perform all of these functions and more.

Do you know enough about accounting, banking and insurance to  do a proper job as Chief Financial Officer? Perhaps your answer is that you don't have to know about accounting because you will employ an outside bookkeeper.  Many do, but it is essential that you know enough so that you can understand financial reports and the relationships between them. After all it will be your money and acquiring and hanging on to
some of it is why you are starting the business. Don't delegate 100% of the tracking of its comings and goings  to outsider.

What about advertising? Do you know much about the myriad of ways you can advertise your business? How about labor law, payroll taxes and so on. If you are to be an employer, you need to have basic knowledge about these issues.

What I am suggesting is that you do a thorough assessment  of what you need to know and match that up against what you do know.  Then find a way to plug the missing gaps. That is the first step in assesses your readiness. More in the next post.

Find a SCORE mentor to help you learn what you need to know.