Are you thinking of starting your own business, or are you just starting out as a sole proprietorship?
Over the past forty years, I have had four successful businesses and have seen many others fail. The first was ten years owning a construction company, and it was there that I learned some valuable lessons that have carried me through to the others. These are things that I either didn’t give enough thought to before venturing out on my own or didn’t understand completely. All three are crucial for success.
- If, When, and How to Do Marketing
- If, When, and How to Hire Employees
- How to Manage the Accounting Side of Business
When I began my first business, installing ceramic tile, I had already procured my first customer, Burger King. I had a deal with all of the company-owned stores in the Atlanta area to do all their repair work, and it was very profitable. Until it wasn’t. I had dreams of expanding into their franchises or going national. Until I didn’t.
One of the worst mistakes you can make as a business owner is to put all your eggs in one basket and not actively seek new clients. I have seen it done many times, and I have seen it fail every time. In the first place, if most of your income is derived from a single company, you are no longer self-employed. You work for that company, and you had better perform. Secondly, and most importantly, when, not if that contract dries up, you are screwed. The more clients you have, the less important each one is to your bottom line.
So, marketing is something that requires a good deal of your attention from the moment you think about starting your own business, and every day after that. Even if your client base is spread out and you have more work than you can handle, you have got to continue your marketing efforts. I can’t tell you how often during that ten-year business, I got too busy to market. What happened each and every time? Eventually, the work dried up, and I was starting from scratch.
Don’t do that.
Market and sell yourself always. Always have potential new clients in the pipeline. It is far better to turn down work than not to have any.
Do you need them?
It depends. In all of my businesses, I had a choice; they could all be run single-handedly. In others, employees are a requirement. So, the first question is, should you hire help if you can run the business on your own.
Again, it depends.
When I started my tile business, I didn’t have any employees, but I began to hire a few years later. The company where I learned the industry had many employees and was continually growing. To me, that equaled success. The more employees you have, the more work you can do. The more work you can do, the more money you make.
For a single individual, the accounting is pretty simple. Gross minus expenses and overhead equals profit. Now let’s say with one employee, you can do fifty percent more work. It won’t be double unless you hire someone as motivated and driven as yourself who requires no training or supervision; unlikely.
So you are doing fifty percent more work but having to pay that employee’s salary and taxes. Maybe you are now making ten percent more money. If you are lucky. And the stress and aggravation just tripled. Trust me on that. Plus, when work slows down, you have to keep your employees, so now, you are making less money, even losing money.
So, if you don’t have to keep employees to run your business, think long and hard. Everything about running a business gets much more complicated with even a single employee.
How do you treat them?
Like you would want to be treated.
Slave drivers only employ slaves. Don’t be that guy. Treat them with the same loyalty and respect with which you want to be treated. An employee who wants to do a good job is much more valuable than the one you have to crack a whip over regularly. I always hired completely inexperienced workers and trained them myself. Most eventually went on to run their own businesses. This gave me pride.
On one occasion, I hired someone with experience; he lasted exactly one day and a half. I was driving to the job site on his second day at lunch and passed him walking the other way. When I turned around and asked him why he was leaving, he said, “You guys work too hard.” Bye-bye.
You see, the rest of my crew were self-driven and self-motivated enough to work hard even when the boss wasn’t around. This guy couldn’t handle that.
Learn it or hire it out. Before you start. It is crucial.
You have got to understand if and when you are making a profit. When you are losing money and on which jobs. And tax accounting, don’t get me started.
I can’t tell you how many times I have seen businesses fail because the owners had no idea if they were making or losing money. If the cash flow is large enough and steady enough, it’s easy to lose track. After all, there’s always money at your disposal; you must be making a profit. But that’s just not true. And all it takes is one hiccup in the cash flow to drive that point home.
You need proper accounting to know if you are profitable as a whole, but also how much each client or job is contributing to that profitability. You don’t want a single client to have too large a piece of the pie as losing that client will be catastrophic. You also don’t want any client to be a drain on your bottom line, no matter how attractive that client is in other ways.
You can learn to do this yourself if you want. With apologies to accountants, t’s not rocket science. But it is an exact science. And it takes time to do it right. Time you could be spending doing more work or increasing your marketing efforts. And once you hire employees, the accounting work quadruples. Even if you want to handle the day to day bookkeeping yourself, employ an accountant to work with you at least quarterly to go over the books and make sure you are on track.
Whether you are a butcher, a baker, a candle-stick maker, or a tile installer, running a business requires running a business. And the business side of things is the same for everyone. If you are thinking about heading out on your own, give considerable thought to these three lessons I had to learn the hard way.