You might own a business that is struggling. You might own one that is very successful. Or you or you might be just thinking of being self-employed one day. If so, this is a fantastic time. I say this because it’s inexpensive to borrow money right now (if you need to borrow money to start your business). It’s also a great time because other small business owners are struggling. As a result, you might find yourself a real gem of a small business at a real bargain price and finance it very inexpensively.
However, before you take the plunge, here are 11 tips to help you own a successful small business and avoid the pitfalls many business owners find themselves in.
My father was a small businessman, and unfortunately he made some huge mistakes. My family and I lived the painful results of those mistakes. In addition, I’ve been working with small business owners as clients for the last 25 years on top of running my own shop. As a result, I’ve built my business around 11 principles that have helped my clients, my family and my business grow and stay clear of trouble.
1. Start Slowly
I started my business on a folding table in my spare bedroom. Once the revenue started growing, I was willing to invest in an office and support staff. Don’t adopt the strategy of “build it and they will come.” A friend of mine did that and lost everything. He borrowed every cent he could, leased an A-grade office space and bought the best computers and phone systems available. He did all this before he earned a single dollar. Three years later he found himself in bankruptcy court.
Don’t fall into this trap. Invest the absolute minimum possible. Test test test. Start your business as a weekend enterprise if possible. If you don’t see good results, accept the fact that the universe is telling you to find something else to do. The first loss is the best loss. Don’t impose your will on the market, because the market wins every time.
2. Don’t Jump into a Partnership
Many times folks go into a partnership because they are afraid of the unknown and want to share their fear. That’s not a good reason for having partners. In a short time you’ll overcome your fear because you’ll have experience in your business. But you are going to be stuck with your partners for a very long time.
The only time you should have a partner is when she provides something you don’t have. Even if you are thinking about buying an existing business, needing more cash is not a good reason to partner.
If you are going to have a partner, make sure you each write down what it is you are prepared to give and what you want from the partnership. Each of you should write this up separately and then compare notes. If it looks like a fair exchange, go for it. If not, find other ways to obtain the missing links for your small business.
Neal’s Notes: Looking for more cool small business tips? Here are the 7 top secrets every successful entrepreneur knows – and you should too.
3. Cash Flow
Your business lives and dies with cash flow. Make conservative estimates about sales and costs. Know how much it costs to start your small business. This is no time to be optimistic. Make sure your estimates are based on your experience. While you’re at it, consider the hours you’ll be putting in in order to rack up those sales. Look at your personal budget and make sure you can survive on the projected income for at least six months. The number one killer of small business is negative cash flow. Don’t become a victim.
4. Know the Market
Don’t jump into a business just because the numbers look great. Work in the industry before you open your own shop. I didn’t become a financial advisor until after I worked in a bank for several years. That’s where I learned about customer service, financial products, regulations and back office paper flow. All that was very important. Even though I have staff and they take care of that now, it’s pretty helpful to know this stuff backwards and forwards. That’s why people who buy McDonald’s franchises have to learn every single job in the restaurant before they are allowed to buy a franchise.
Every great small business idea still needs selling and marketing to run profitably. But understand that these are two different skill sets. Selling is basically finding out what your clients’ needs are and providing a solution. In my opinion, selling is not shoving some product down everyone’s throat. If your clients’ needs don’t include your products, tell them the truth and help them find another solution. By doing so you’ll convert customers into loyal clients, and when they do need your services or products, they’ll be back.
You might have the best products in the world, but if people don’t know about it, you’ll never keep your doors open. How are you going to market your business? What’s your plan? Have you budgeted for marketing?
7. Reduce Risks
Some folks think that if you own a small business you are a big risk taker. Nothing could be further from the truth. A small business owner wants to control her future and not be dependent on some mid-level manager to determine her future. As a business owner, don’t think of yourself as a huge risk taker. Consider yourself a person who likes to control her own destiny. That being the case, you owe it to yourself to reduce risk whenever possible. You accomplish that by really knowing your industry as described above and by being on top of your cash flow.
You also need to understand a little about law. Should you form as an S-Corp? A Professional LLC? What is the best way to go? This is where having a good business attorney and CPA is smart.
Besides having this understanding, you need to reduce risk as much as possible by having the proper business insurance in place. One reader realized after spending a lot of money to set up her plan that she couldn’t find inexpensive product liability insurance. As a result, she couldn’t launch her business. She’s actually better off by not launching her small business since she couldn’t find the coverage. But she would have been better off still had she looked into that up-front.
8. Your Plan
Your business plan isn’t a guarantee of success, but you can almost guarantee failure if you don’t have a plan. Ideas are wonderful, but business is about execution. And proper execution demands that you have a good solid plan and that you understand all the details and dynamics.
9. Talk It Up
Don’t keep your ideas to yourself. Discuss your business idea and plan with trusted business people you know. Get their input. Don’t be afraid of someone stealing your ideas. While this might happen, the odds are against it. You face a greater risk by going ahead with an idea without considering all the variables. The only way to make sure you don’t overlook something important is to discuss your plan.
10. Be Flexible
It’s true that you need a good solid business plan, but you also need to be flexible. Don’t be so fixated on your plan that you fail to recognize the facts on the ground. Nothing occurs exactly as planned. You have to be willing to go with the flow and upgrade your business plan as conditions change.
11. Focus on Your Goals
The reason you go into business is to have more control over your life. You can better control how much money you are going to make and what your life is going to look like if your business is successful. If your business is not successful, you will have less control over your life and how much money you make. Therefore, your goal should be to make your business a financial success. Pretty obvious.
While you certainly can use your business as an expression of your passions and values, your business must be profitable. If not, you won’t be able to serve your clients, your family or yourself. Be mindful of how you spend your time, what clients you serve and what services and products you provide, and make it a win-win for your customers and yourself. If you find yourself involved in activities that do not support the survivability of your business, stop those activities immediately.
These are the 11 principles I use to run my business, and they’ve worked pretty well for the last 25 years. What tips can you share to help others?