One of my sons is taking a courageous (and risk filled) move to launch his own company. I have had the honor of being friends with many small business owners – a few who were were wildly successful, some who were moderately successful, and many others who failed miserably. I am going to dedicate some posts to sharing thoughts about what lies ahead for him (and for you if you are considering the same).
I called this move “courageous” because 50% of small businesses fail in the first year and 95% fail within the first five years (according to the SBA). The SBA is one of the most useful of government agencies because they are dedicated to supporting small business owners. They have a website dedicated to helping assess if you are ready to take this risk. They have tools to help write your business plan, plan your company structure, and manage your financials, taxes, and employees. They also help you network with others who are on the same path. Here is the site.
I’ve heard so many people say “I want to start my own business” or “I want to be my own boss” who are completely unaware of what lies ahead. Candidly, we all tend to focus on the reward side and not the risk side. I am proud of my son for researching and studying the risks that he is about to undertake. But most people dive in without understanding:
- Many customers fail to pay, and you don’t have the money to pay for an expensive litigation process to collect. Some businesses go bankrupt because of a single bad transaction.
- Most vendors do not give a new small business any credit. They expect you to carry the cost of parts and inventory while waiting for the customer to pay their bills. You must have enough cash to pay your bills when your customers don’t (and still put food on the table).
- Most small business owners under-estimate the time, cost, and energy required to bootstrap the new systems. (Accounts Payable, Accounts Receivable, General Ledger, Inventory Management, Invoice Management, Asset Management, Computers, phones, websites, etc.) Some spend up to 50% of their time on non-billable activities.
All of the small business owners I know have told me “I don’t own my business… my business owns me.” They discover that the freedom they expected did not materialize and they have replaced the captivity of working for someone else by the captivity of working for themselves (and they still don’t like their boss).
If you are thinking of following in my son’s footsteps, you better think twice. They are not easy steps to take.
Thanks for listening.