Challenge No. 3: Having the Proper Attitude

"The first thing I tell my kids is, if possible, find something that you love that has the potential of being a successful business. Enjoy what you do. Ideally it's something you'd do for nothing."

Small business owners agree that the proper frame of mind, realistic expectations and strong personal commitment to your venture are at least as important to a business' success as industry knowledge.

"Want to win," recommended one owner. This absolute drive to do what you love is necessary in order to withstand the demands of starting and running a business. Small business owners unanimously agree that starting a business requires long hours -- even longer than most had anticipated.

"Make sure you want to devote a lot of time to it," advised one owner. Another disclosed how the demands could hit closer to home: "My biggest first-year challenge was long hours" he said. "I knew they were going to be long. I didn't know they were going to be that long. It affects your family you're not there to do all the family things you had been doing before you went into business -- and that in turn affects your business."

Long hours and the normal strains of business usually add up to stress -- and coping with that stress is a major challenge for small business owners. A supportive family and the will to succeed see many owners through that critical first year.

The hardest challenge for me and my wife during our first year was the stress, disclosed one owner. "A combination of things helped me deal with this. Certainly, my love for my wife, who is my partner, and a great deal of love and affection for the business. We really like what we do ... not every day, but most of the time it is fun. They say that business is tough when you love it, but it would be impossible if you didn't.

And I think that had a lot to do with making it."

Maintaining the necessary high energy level over time is another major challenge -- but with the right attitude, it can be a fun challenge.

"Early on I worked the hours. But I never noticed it.... Getting up in the morning and going in there and chasing that business around was the most fun I ever had. Talking to people about it. Sitting down with other people in the same kind of business. I mean, I just lived and breathed it for a good three and a half, four years, sixty hours a week. But it was fun. Just a thrill."

Another extremely successful small businessman who had recently started his fourth business explained why he had come out of retirement -- for the second time -- to do it all again: "It's more fun than I've ever had," he said.

Realistic expectations are also important. "Be realistic," advised one owner, "don't expect the worst, but don't expect the world." Every business has its setbacks -- "Prepare yourself for failures," recommended one owner -- but commitment and the right attitude carry owners through.

Finally, owners stress that to be successful you must have the right motivation. A "get-rich-quick" mentality is unrealistic and will probably lead to eventual failure ... while a deep commitment to quality can help you take off in the other direction.

"The idea of integrity, to be in business to serve others, is the only way in which to be productive. Chasing the almighty dollar may help for just a little while, maybe weeks, months or years, but it is still just a little while. To be able to always have people receive you in a positive manner in your business, performance is very important. Without it, I don't care what you are selling."

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Challenge #2: Knowing the Basics of Business Management

"I found I had to become a business person, something I didn't realize I was going to have to do. I had to learn a lot about accounting, about bookkeeping, about the banking business."

In addition to knowledge of a specific field, small business owners need to know the basics of managing a business -- for example, the principles of accounting and bookkeeping, production scheduling, personnel management, financial management, marketing, planning for the future, and more. Many owners feel they were under prepared in these areas, particularly in the financial aspects.

One of the best management skills to have, according to a golf equipment manufacturer, is fearless self-knowledge. "Be qualified to run your business," he advocated. "Be aware of your own weaknesses and go out and get help to make up for those areas...to get through that first one or two years."

Other executive skills are also important. A computer-engineering consultant stressed her need "to be able to do briefings properly, comfortably, to gain confidence of groups of people...to quickly communicate my capabilities and my company's capabilities."

Executive skills also include goal setting and decision-making, and human resource development. This last aspect is important, noted many owners, because it builds the future of a business. Not only must you find and retain good employees, but you must continually train them to ensure that you have a qualified staff as the business grows.

Another common theme expressed among the many small business owners interviewed was the need for good sales skills. During start-up, many of them found themselves sales people for the first time.

As a business grows, the need to further develop management skills intensifies. In addition to such areas as managing people, the ability to plan is an essential skill that builds the future of a company.

"Planning," according to one owner, includes the idea of budgeting not only for your present conditions, but also planning for the future." Anticipating what your industry will be like several years down the road, where the competition is directing its efforts, what customers will want in the future, and where profits should be reinvested are some samples of what must be included in planning efforts.

To help with ongoing planning during the life of their businesses, many owners develop a formal business plan before starting or purchasing a company.

"We did a lot of planning before we started," recalled a publisher. "We did the whole business plan and marketing plan, and planned out how much revenue we were going to receive for the first year and how much money we were going to need to get us through."

Business plans usually include projections of fixed and variable expenses, and analyze of the company's break-even point (the amount of sales necessary to cover expenses), competition, and projected sales. A business plan also includes strategies for marketing and growth.

This establishes a permanent but flexible "game plan" that provides guidance when difficult decisions must be made. Other planning tools, such as annual marketing plans, spell out specific steps to be taken to reach short-term goals.

During any kind of planning activity, outside consultants such as accountants and lawyers, and agencies such as the Small Business Administration, can provide valuable expertise.

Finally, one of the most important but often overlooked aspects of planning is how or when to leave your business. A successful financial service business owner insisted that this should be included in the initial business plan. "By the time many people are ready to sell their businesses," they're so personally involved in the business that they cannot make an objective decision. The decision to divest oneself of a business is a highly emotional and difficult one. By establishing early-on the conditions under which a business will be sold, you can make a better decision."

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Challenge No. 1: Knowing Your Business

 "People who succeed are the ones who know the most about what they are doing." Without exception, small business owners agree that knowing your industry is fundamental, expert knowledge of your industry practically dictates your success.

 Small business owners believe that knowing your business entails in-depth industry knowledge, market savvy -- such as competitive knowledge and how to attract customers -- and a certain practical knowledge of how to find suppliers and distributors. Owners believe the necessary expertise is acquired through a combination of formal and continual study, and on-the-job experience. Unanimously, they recommend that new or would-be owners become as qualified as possible in all of these areas, beginning with professional education.

 

"Get the best education in your field that you possibly can," advised a manufacturer. "Find out everything that you can and be totally dedicated to spend the time tutoring under the leader in your chosen business endeavor."

 This manufacturer valued hands-on experience as well, saying, "I had a number of years in an apprenticeship program, and, at the time, I didn't realize the value of it."

 When it comes to professional knowledge, all agreed that successful small business owners have the experience and background in their chosen area.

It is critical to expand this basic knowledge into overall familiarity with the marketplace. A manufacturer advised entrepreneurs to "research to make sure the need exists for the service or product ... that people you're selling to can afford to buy it, and to ensure that they can access it." By access, he meant having a good business location or distribution system.

The Ten Commandments of Small Business

I.                      Establish the Strategic Direction of the Company ... Mission Statement!

II.                     Build Loyal Employees

III.                    Hold Employees Accountable

IV.                   Continue Upgrading Management

V.                    Build Strong Relationships ... vendors, customers, and advisors.

VI.                   Keep Margins and Markups as Low as Possible

VI.                   Always Produce and Provide Quality

VII.                  Strive to be the "Low Cost" Producer

VIII.                 Grow ... but do so prudently and profitably.

IX.                   Create Excellence in Operations and Execution

X.                    Install a Management Process to Guide and Control the Company

XI.                   Thou shalt make a profit!!!

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Why Prepare a Business Plan?

Most entrepreneurs prefer to be an "entrepreneur" first and a business person second.  This is the first big mistake most new business owners make!

Planning and good management skills are vital to business success.  Those who do not plan run a very high risk of failure.

A business plan is a formal, written summary of what you hope to accomplish by being in business, and how you intend to organize your resources to meet your goals.  It is essential to plan so that you can successfully operate your business and measure your progress along the way.

Planning forces you to think ahead realistically rather then optimistically. It helps you:

Identify your customers

                                    Identify your market area

                                    Establish your pricing strategy

                                    Recognize the competitive conditions you must operate under

                                    Have clear goals to aid in decision making

Planning will not only aid in validating your original ideas and assumptions (or invalidating them) but often leads to the discovery of new ideas and opportunities. 

A business plan will also help establish the financing needed to establish and grow a business.  It makes it easier for a lender to assess your venture and will aid in securing financing if done properly.  If the business plan is realistic, comprehensive, well documented and professional it will serve as an important document for outside lenders as well as business owners.

Once the business is started the business plan must be reviewed and updated on a regular basis.  A business plan is not a one shot project.  It is always a "work in progress."  Three to four hours (at a minimum) should be spent every month updating the business plan.

Sharing Ownership With Others

Now that you have decided what business to start and about how much capital will be required, you may find it necessary to join with one or more associates to launch the enterprise.

 Partnership

If you lack certain technical or management skills which are of major importance to your chosen business a partner with these skills may prove a most satisfactory way to cover the deficiency. If you are very skilled in your special area but lack management training and skills, you might look for a partner with a background in management. If you may need more start-up money, sharing the ownership of the business is one way to obtain it. Great care should be taken in deciding upon a partner(s). Personality and character, as well as ability to render technical or financial assistance affect the success of a partnership.

 

A partnership can be a mixed blessing. A partner who puts in time or money has a right to expect a share in running the business.

 In a partnership the liability for the debts of the firm is unlimited, just as it is in a single proprietorship. This means the owners are personally responsible for the firm's debts, even in excess of the amount they have invested in the business. In a corporation the liability of the owner is limited to the amount they pay for their shares of stock. A partnership, like a single proprietorship, lacks continuity. This means the business terminates upon the death of the owner or a partner, or upon the withdrawal of a partner.

 

Corporation

The corporation is a legal entity whose continuity is unaffected by death or transfer of stock shares by any or all of its owners. Even with no partners, you may decide a corporation with minor stockholders is better than a single proprietorship primarily because of the corporation's limited liability.

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Cash Planning

The first question you want to answer is: How much money will I need? But this question can't be answered until several other questions are answered and several decisions are made.

To decide how much money is needed to start a business, enter all of your potential income and all of your planned expenses on a work sheet or form.

Even though you may feel that this kind of planning is more than you need to start a simple small business it is useful to get started with this approach to management which puts figures down in black and white. You will find the same approach valuable in an established business.

First, estimate your sales volume. Obtain assistance in making your sales estimate from wholesalers, trade associations, your banker, and other business-people. Several business and statistical publications may be useful in making sales volume estimates.

In reaching your final estimate of sales do not be over-enthusiastic. A new business generally grows slowly at the start. If you overestimate sales you are likely to invest too much in equipment and initial inventory, and commit yourself to heavier operating expenses than your actual sales volume will justify. Since you are just starting up you might have no sales for the first few months. At any rate you can expect your first few months to be very low.

You must also determine what proportion of your sales will be cash and what proportion will be sold on credit. If you estimate that a certain portion of the sales will be on credit then you must figure when you are going to get the money for these sales. One month? Two months? More? Never (Bad Debt)?

Next, estimate how much cash will be paid out. Remember that in starting a business you may be purchasing equipment, paying fees and licenses, making deposits on lease, utilities and so on, several months before you open the door. Some of these expenses are easy to estimate. If you have decided to lease space then you know what your deposits will be and how much you will have to pay out each month. You can probably get the cost of fees, licenses and utility deposits with a few telephone calls.

Other expense figures may take a little more work to get. One way is to obtain typical operating ratios for the kind of business in which you are interested. Among the sources for such ratios are Dun & Bradstreet, Inc., trade associations, publishers of trade magazines, specialized accounting firms, industrial companies, and colleges and universities. The typical ratios for your type of business multiplied by your estimated sales volume will serve as bench marks for estimating the various items of expense. However, do not rely exclusively on this method for estimating each expense item. Verify and modify these estimates through investigation and quotations in the particular market area where you plan to operate.

Don't forget to pay yourself too. You may need money to live on if you have to quit your job. If your spouse is working and can support the family for a while you may not have to withdraw money from the business. The longer you can go without taking money out, the quicker you will build up a strong cash position. Now that you have estimated your cash receipts and expenses, write down the amount of cash you will put into the business to start.

Don't forget to pay yourself too. You may need money to live on if you have to quit your job. If your spouse is working and can support the family for a while you may not have to withdraw money from the business. The longer you can go without taking money out, the quicker you will build up a strong cash position. Now that you have estimated your cash receipts and expenses, write down the amount of cash you will put into the business to start.

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