Setting Your Small Business in Motion, Successfully
Some of our clients own their own business; more of you may decide to start one someday whether as a career, for extra income, or as a retirement activity. The Small Business Administration (SBA) estimates that there are more than 30 million small businesses (defined as those with fewer than 500 employees) accounting for over 99% of all companies in America. So, how can a small business get on the right track and be successful?
One of the main tricks is to create a business that serves the business owners needs as well as their customers. Of course, there are business issues to consider but in a small, new operation in particular, the dreams and goals of the owner are major factors in its success. If you are thinking about a small business, begin by cataloguing your reasons for starting a business, the strengths you bring to the operation, and the weaknesses you will need to augment. Creating an owner-centric organization energizes you to carry out other tasks.
While there is a high start rate to small businesses, there is also a high failure rate. The SBA statistics suggest that over 20% of new businesses will fail in their first year; about half survive for five years; and about one-third are operational after 10 years. Don’t be too discouraged by these figures. Attention to some financial and business principles will help improve those rates:
The primary reason for failure is the lack of capital and/or low cash flow in a business’ first year or the burden of business debt. Even SBA-guaranteed loans require personal guarantees and asset pledges and may put into jeopardy the business-owner’s other income streams, assets and retirement plans.
Some experience or training in the firm’s line of business is required in addition to being business savvy. There is a need to create a business plan, set up separate bank accounts, monitor budgets and cash flow daily, and generate financial statements, along with required state and federal tax reporting.
There are also legal and practical issues of employing staff (from Equal Opportunity to OSHA safety rules), fair dealings and contractual laws in dealing with customers, and the liability owners face, depending on the type of ownership (corporate, limited liability or sole proprietor).
The challenges of understanding these areas can be daunting to any new business owner. Fortunately, there are many resources available to help.
- Numerous books are on the market. A few of my favorites include:
- The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup by Noam Wasserman
- Start with Why: A Practical Guide for Discovering Purpose for You and Your Team by Simon Sinek
- The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It by Michael Gerber
- Most states provide formal classes or workshops and/or free counseling through Small Business Development Centers co-sponsored with the SBA. In fact, Washington State University has a robust SBDC group on campus.
- State agencies provide training as to reporting requirements, workers’ compensation, state taxing laws and other reporting, and the federal government provides guidelines on federal employee tax deposits and business reporting.
- Professional advisers can help with legal, financial, tax, management and insurance issues. These might include an attorney, a Certified Public Accountant, a business insurance agent, and your financial planner (to coordinate personal and business goals).
Those new owners who begin with a clear vision of their own goals, then add expertise where needed, have a greater chance to succeed and realize the pride of ownership and financial rewards of a small business.
Written By Heidi M. Johnson Bixby, CFP®