Introduction
Small business is many things to those of us who have participated in it or have dreamed about participating in it. Without a doubt, the concept of “being your own boss” is an alluring one.
But not everyone can be his or her own boss — at least not a good or successful one. If you’re currently someone’s employee (not a boss), fantasizing about owning a business of your own is perfectly natural on those days when you’re fed up with your current boss or job. Your fantasy is made even more attractive by the rags-to-riches stories you hear about entrepreneurs who’ve turned their visions into millions or even billions of dollars.
Please know, however, that small-business ownership has some not-so-appealing aspects as well. Most often, you have to spend many years working hard and making tough choices before the risks you take turn into rewards. Furthermore, a significant percentage of small businesses don’t survive to enjoy the long-term rewards. And perhaps most difficult of all, the entrepreneurial career can be lonely at the top.
Of course, the thrill of being the ultimate decision-maker may be exactly what attracts you to small business in the first place. But you need to realize that this attraction also has its downsides, the most prominent of which is that it breeds trial and error, and trial and error begets mistakes. Mistakes are the most expensive (and most dangerous) way for the small-business owner to learn.
But wait! Before you plod back to your day job, we have some good news for you: The mistakes that you’re likely to make have already been made by those who have gone before you — including us. If you can somehow avoid the trial and error that leads to mistakes (which is what we’re here to help you do), your chances for success multiply many times over.
Despite the previously mentioned downsides, it’s impossible to describe the sense of accomplishment you’ll get from starting and running your own successful business. Like so many before you, you’ll know the thrill of creation, you’ll feel the pride of watching that creation grow, and you’ll realize that your work and your vision have filled an identifiable void for your customers, for your employees, and, of course, for you and your family. And for those of you who rise to the top of the small-business pyramid, you’ll enjoy the greatest upside of them all — unlimited upside. Ask Bill Gates about how this reward feels.
Although you can find plenty of small-business books out there, most of them aren’t worthy of your time or dollars. Forbes magazine once said of the marketplace for small-business books, “Warning: Most how-to books on entrepreneurship aren’t worth a dime.” The marketplace apparently agrees — the vast majority of small-business books don’t sell after their first year or two. We’re proud to say that this updated and revised fourth edition launches the 14th year of this book’s history! We’re grateful for reviewers’ kind words, such as the praise from Hattie Bryant, creator of the PBS series Small Business School, who said of our book, “No one should try to start a business without this book.”
Michael Gerber, author of The E-Myth series of business books (HarperCollins), makes the point that “the one common denominator in every successful entrepreneur is an insatiable appetite to learn.” If Michael is right, and we believe that he is, you’ve passed the first test of the successful entrepreneur: By purchasing this book, you’ve displayed a desire to learn. Keep it up — you’re on the right track.
Small business isn’t rocket science. You don’t need to be a genius to start and run a successful small business. What you do need is help, which is exactly why we wrote this book. We’re pleased that you chose us as your guides into the stimulating world of small business.
About This Book
The following backgrounds and philosophies serve as a guide to the advice we provide — advice from the field that makes our small-business book stand out from the rest:
We’re small-business experienced, and we share the benefits of that experience with you. Between us, we have six decades of experience in starting and running seven successful small businesses. In addition, we’ve worked with thousands of small-business owners. Jim has led numerous small-business peer-networking groups and has provided volunteer counseling services to small-business owners. Eric has conducted financial counseling for small-business owners, taught financial-management courses, and worked as a management consultant.
Throughout this book, we share the experience we’ve gained, in the hopes that you’ll use our advice to purge the trial and error from your inventory of management tools. We also share an ample collection of straight-from-the-horse’s-mouth anecdotes, each one based on a true story.
We take an objective view of small-business ownership. Although we firmly believe in the creative power of small business, we’re not here to be its pitchmen.
Sadly, too many small-business books are written by folks with an agenda: a franchise to sell, a multilevel marketing scheme to promote, or a high-priced seminar to foist on the reader. Free of conflicts of interest, we’re here to pass on the truth and let you decide. If you’re the type of person who wants to get into this competitive career field, we’d like you to enter the race informed as well as inspired.
We take a holistic approach. Because small business can at times be both demanding and intoxicating, running your own shop can threaten to consume your life. Although everyone knows that life is more than just business, striking a balance and staying in control can represent a colossal challenge. With that in mind, we take particular care to present the realities of running a small business within the larger (and more important) framework of maintaining a happy personal and financial life.
We’re committed to updating this book so that you have the best and latest information and advice at your fingertips. Tax laws change, benefits change, technology changes, and so do many other facets of the small-business world. That’s why we’ve remained on top of these changes and revised this book.
Conventions Used in This Book
Every book has its own conventions, and this one is no different. To make the most of the information we provide, keep your eye out for these conventions:
Italics highlight new terms that we define.
Boldfaced text indicates the keywords in explanatory bulleted lists and action steps in how-to numbered lists.
Monofont sets web addresses apart.
What You’re Not to Read
Of course, we’d love for you to read every word of this book, but we’re realistic. We know you have important things to do. So if you’re in a hurry (or if you’re just not into reading the extra, nonessential information), you can safely skip text highlighted with the Technical Stuff icon or formatted in gray-shaded sidebars. This text provides plenty of helpful information, but the information isn’t crucial to your understanding of the topic at hand.
Foolish Assumptions
Many small-business books assume that their readers are ready to make the leap into small business and are cognizant of the risks and pitfalls. We don’t make that assumption here, and neither should you. That’s why we include sections designed to help you decide whether small business is really for you. We spell out the terms of starting your own business, break down the tasks, and point out the dangers. We don’t think that you’re incapable of making the decision yourself; we just know that time is your most precious resource, and we think we can help you save it. You’ll lose too many years of your career if you make the wrong choice.
Much of this book is targeted to running and managing your existing small business intelligently. Even if you have a great idea, operating a small business is much harder than it appears, so we show you the best ways to manage and grow your enterprise.
How This Book Is Organized
We’ve organized this book to satisfy different reading and personal styles. Some of you may read it from cover to cover, while others may refer to it to answer a specific question or address an immediate concern. For this reason, each chapter of the book is designed to stand on its own. We’re flexible — read it as an all-in-one project or use it as a reference guide.
Much like every small-business owner, this book must wear a number of hats. We’ve organized those hats into five parts. Here’s what each part covers.
Part I: Becoming an Entrepreneur
Your first small-business decision may be to admit that you’re not ready for this career — at least not yet. If you’re straddling the fence, Chapter 1 is here to help you dismount onto one side or the other. We help you make the right choice by presenting you with an aptitude test that helps you determine whether this career works for you.
If you decide that small-business ownership is right for you, you’re ready for the rest of this part. Make no mistake about it; no matter how creatively you and your lawyer attempt to structure the incorporation of your start-up, the business of small business involves risk. Therefore, before exposing yourself to such risk, we suggest that you get your personal finances in order. Enter Chapter 2, which covers personal money management.
As you move past your personal finances to the business you hope to start, take heart: The road in the early stages of a small business has so many detours and forks that you’re bound to lose sight of the road itself. Chapters 3, 4, and 5 provide you with the map you need to reach your destination. In these chapters, we overturn all the stones of a typical small-business start-up, from choosing the right niche for you to writing a gangbuster business plan to creating the right legal framework to locating the financing that suits your needs.
Part II: Buying an Existing Business
So you say you’re considering buying an existing business as opposed to starting one from scratch? That’s all well and good, but you need to ask some finely tuned questions prior to making that decision. “What are the advantages of buying an existing business over starting a new one? What kind of business should I buy? How should I determine the price I can pay? What are the tax implications? What are the first things I should do after the sale is completed?” You find the answers to these questions (and many more) in Chapters 6 through 9.
Part III: Running a Successful Small Business
You’ll soon discover that small-business ownership is really one never-ending exercise in problem solving. Lucky for you, we’ve designed Chapters 10 through 15 to help you solve small business’s most compelling problems. Here’s a partial list of those problems:
Sales creation: No sales, no income, no business survival. Period.
Marketing: Although such small-business functions as sales, accounting, and operations are primarily black-and-white issues, that isn’t the case with marketing. Marketing is gray, fuzzy, and hard to define (go ahead, try defining the word marketing right now in one easy sentence). To make matters worse, it’s one of those aspects of doing business that doesn’t come naturally to most people.
Operational issues: Operational issues are everything on that long list of day-to-day responsibilities, beginning with how you spend your day from the time you walk in the office or store in the morning until the time you go home at night. These issues include everything from collecting accounts receivable to understanding financial statements to taking good care of your customers. And don’t forget the foremost operational issue: managing the lifeblood of your business — cash.
Long-range planning: Small-business owners recognize that long-range planning is important, but unfortunately, they’re often too busy dealing with day-to-day business minutiae to get around to it. They say they’ll focus on planning tomorrow, but alas, tomorrow never comes.
Accounting and bookkeeping issues: Double-entry accounting systems? Cash flow projections? Current ratios and inventory turns? You’re probably saying, “Give me a break. What does all this have to do with my chocolate-chip cookie business?” You’ll see!
Technology issues: Today, new telecommunications and information-gathering tools are appearing faster than politicians promising to cut taxes and improve government services. Keeping up is sometimes challenging, but you must do it.
Financing issues: Capital is the food that feeds every small business. If you lack money, you may not be able to get your business headed in the desired direction. No capital equals no fuel to make your business go.
Everything else: This category includes but isn’t limited to such issues as product development, pricing, budgeting, customer service, ownership issues, and lifestyle issues.
Part IV: Keeping Your Business in Business
After your company is underway, your focus shifts from getting started to staying in (and growing your) business. Here are just some of the issues we address in this part to help you delve deeper into the world of small-business ownership:
Employees: Deciding when and whom to hire is a vital but difficult decision. Then, even when you’ve hired the right employees for the right jobs, you’re faced with the never-ending task of motivating and retaining them — and sometimes replacing them.
Government regulations: Because you’ll likely have to deal with several layers of government regulators during the life of your small business, you need to know how to do so without breaking the bank or your sanity.
Taxes: You have to understand the tax laws so that you can best position your small business to minimize your legally required taxes.
Growth: All businesses want to grow, but you need to recognize the downsides and risks you’ll encounter if you grow too rapidly or without proper controls in place.
Part V: The Part of Tens
There ought to be a rule that says every small-business owner should have his or her own mentor. Sadly, too few do. Meanwhile, the small-business owner’s Fortune 500 cousins learned the mentorship lesson long ago, which is why every new management employee today has a mentor lurking somewhere nearby. Mentors typically are business veterans — people who’ve learned business’s lessons the hard way. Mentors guide and teach, and that’s exactly what certain chapters in this book are intended to do.
Chapters 21 and 22 act as the mentor you need to assist you in building your business. These chapters share a collection of suggestions, advice, and tips on subjects designed to make the difference between maintaining a stagnant or mediocre business and growing a healthy one. Included in these chapters are tips on such topics as how to succeed in your small business and how to avoid common small-business management mistakes.
Icons Used in This Book
To help you find the information you need to assist you on your entrepreneurial path, we’ve placed icons throughout the text to highlight important points.
This symbol indicates time-tested tips to make your small-business journey more profitable and easier. Often straight from the heart of experience, we clue you in on what works for us as we navigate the oft-troubled waters of small-business life.
We present tales from our own experiences to save you some trial and error. Enjoy the company of your fellow entrepreneurs and benefit from the lessons we’ve learned.
The path of small-business ownership can be fraught with peril. Some deals may be too good to be true, and some people may have their own interests at heart, not yours. This icon points out the dangers and helps you steer clear of them.
This icon points out stuff too good (and too important) to forget.
This icon asks you to do some thinking and checking before you take the plunge. You have a lot of important choices to make when running a small business, so don’t rush in.
If you like to sweat the dull stuff, this icon points out the inner workings of the business world that you’re likely to ignore as you get down to the real work.
Where to Go from Here
Where you go from here is up to you, but if you’re just beginning to think about small business, we recommend that you read straight through, cover to cover, to maximize your small-business intelligence. But the A-to-Z approach isn’t necessary. If you feel confident in your knowledge of certain areas, pick the topics that you’re most interested in by skimming the table of contents or by relying on the well-crafted index at the back of the book.
