Where the Money Goes in Growing Small Businesses - Not to Easy Street

Small businesses have several phases  they go through in their early years much like a puppy or a child.  Each of these phases present different challenges and a different understanding of the numbers as they happen.  I am assuming a successful business startup here; success does not mean Easy Street, it simply means we have a product / service to sell that actually does sell at more than it costs and the business has cash flow.

The first feeling in a successful business startup is truly amazing (remember my definition of  "successful business startup") - the selling - the making of 'all the money' - the satisfaction of  'doing something good' and making the world a better place (seriously).  We feel 'in-the-money' as we are making money for each of the process elements of the product / service.  We feel the 'Magic' and want to do it more - the same feelings we get when we win at a casino (except you are betting on yourself) - you can taste winning.!.  Welcome, you are now an Entrepreneur.

Then the business grows - we have a product that people want and we can sell it.  The results though are not quite what we expect - twice the sales do not generate twice the personal income.  Additionally, we hit some stumbling blocks - all of a sudden we have employee issues, sick days, differences in throughput and a lower commitment than we ourselves have as owners - don't try to pretend this does not exist but also don't let this consume all your time and focus.  Sometimes we think we need to adjust prices to compensate for the additional costs - in reality there are no additional costs - those costs are simply not going to the entrepreneur anymore - you are not getting paid to clean the toilet anymore; someone else is.

Remember: Price has nothing to do with costs except

that it must be higher than cost to be in an ongoing business.

 

Assuming we can get beyond making a lower percentage on sales (maybe even less money), we then run into the next entrepreneurial stumbling block - hiring sales people.  They will never be as good as you and they are motivated by money, not your businesses success (normally).  This is the point where the entrepreneur must become more of a manager then entrepreneur.  This is difficult as the business is the entrepreneur's child.  Success here has more to do with building an asset and creating wealth than making more money.  What I tell business owners, that are lucky enough to reach this point, is that they will now feel forever broke as they continue to build the asset (the business).  This is one of the most difficult things to comprehend in small business.  They ask, "when I did one, I made $110K/year; now that I am doing 15 why am I only making $130K/year?"

What many entrepreneurs fails to realize is, if they stepped back from the business, they would still make $110K/year and they now have an asset generating cash flow and profits.

Bob Leonard
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Where the Money Goes in Growing Small Businesses - Small Business Week

Small businesses have several phases they go through in their early years much like a puppy or a child.  Each of these phases present different challenges and a different understanding of the numbers as they happen.  I am assuming a successful business startup here; success does not mean Easy Street, it simply means we have a product / service to sell that actually does sell at more than it costs and the business has cash flow.

The first feeling in a successful business startup (remember my definition of  "successful business startup") is truly amazing - the selling - the making of 'all the money' - the satisfaction of  'doing something good' and making the world a better place (seriously).  We feel 'in-the-money' as we are making money for each of the process elements of the product / service.  We feel the 'Magic' and want to do it more - the same feelings we get when we win at a casino (except you are betting on yourself) - you can taste winning.!.  Welcome, you are now an Entrepreneur.

Then the business grows - we have a product that people want and we can sell it.  The results though are not quite what we expect - twice the sales do not generate twice the personal income.  Additionally, we hit some stumbling blocks - all of a sudden we have employee issues, sick days, differences in throughput and a lower commitment than we ourselves have as owners - don't try to pretend this does not exist but also don't let this consume all your time and focus.  Sometimes we think we need to adjust prices to compensate for the additional costs - in reality there are no additional costs - those costs are simply not going to the entrepreneur anymore.

Remember: Price has nothing to do with costs

except that it must be higher than cost to be in an ongoing business.

Assuming we can get beyond making a lower percentage on sales (maybe even less money), we then run into the next entrepreneurial stumbling block - hiring sales people.  They will never be as good as you and they are motivated by money, not your businesses success (normally).  This is the point where the entrepreneur must become more of a manager then entrepreneur.  This is difficult as the business is the entrepreneur's child.  Success here has more to do with building an asset and creating wealth than making more money.  What I tell business owners that reach this point is that they will now feel forever broke as they continue to build the asset (the business).  This is one of the most difficult things to comprehend in small business.  They ask, "when I did one, I made $110K/year; now that I am doing 15 why am I only making $140K/year?"

What the entrepreneur fails to realize is, if they stepped back from the business, they would still make $110K/year as they now have an asset generating cash flow and profits.

Bob

Where Gold is Going and Why is this "Up or Down" So Different.

Everyone needs to do a little research on some basic economic principles because our next economy is going to be very unique - unique in that what could occur will be unique, not only to my life, but in modern history.

What defines today's economic environment:
Low Interest Rates (3.25% Prime)
Low Inflation (1.72% annualized in April 2013)
High Corporate / Business Profit
High National Unemployment (7.6%)
Ridiculously High (and still growing) National Debt 

What I think the future brings us in the next 10 years.
Higher Interest Rates (duh). Yea, yea, but try to remember the 80s where good mortgage rates were 13% - 16% (think about what that would do to your monthly mortgage payment).  Prime rates exceeded 20% (21.5% on December 19, 1980).  So what will cause rates to go up?  Demand for capital and inflation.

Higher Inflation.  No one likes to talk about this one much but there is definitely the buzz  of borrow today (or yesterday) and pay back at and with tomorrow's dollars.  Can our government (the controllers of our M1) do anything else?  With a 100% inflation over a 10 year period (this is not a lot nor hyper) paying back the national debt will be only half as costly.  Think about that... and then consider that inflation could be as high as 250% in the next 10 years.  Back in 1980 inflation went as high at 14.7%; 1980 was a very interesting year.!  It takes only 7.2% inflation to double the cost of living in 10 years (rule of 72).  In a time of record corporate profits and stagnate wages, we can expect our wages to increase because of new and higher demand for labor and profit potential from that labor.

Corporate profits will, likely change hands and most likely drop from their current levels - but not much.  What does this mean?  Stocks are not necessarily the best investment.  Corporate balance sheets will also change from very high cash positions to lower, more normal, positions.

Unemployment can only go one direction and that is down.  This drop in unemployment will be a part of the fuel to drive inflation (again, remember the 80s and Reagen's 84 classic speech repeating what he said in 1980, "are you better off now or then you were 4 years ago".  In addition, there is a "feel good" to big raises even if they are only to keep up with inflation.

National debt is, like said above. The government will address this with tomorrow's less valuable dollar rather than today's more expensive dollar.

The title of this article is "Where Gold is Going and Why is this "Up or Down" So Different".  So where do you think it will be in 10 years?  A better question to ask is why (based on the information above) is the price dropping over the last several months.  My prediction: $8K to $10K per ounce before 2020.  Hmmm, consider contra-investing.! and ask why some pros are buying.

NOTE: I AM NOT AN EXPERT - JUST MY OPINION

Personal Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 30 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it.