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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Why Collaborative, Cooperative, Complementary Sales Efforts Work

Any time you can build a local team of people who call on like customers, and refer those customers to each other, develop a win – win for all involved.  It’s formalized - structured networking.  Local BNI groups do this better, on a general business basis, than any others I have seen – they say “Givers are Getters”.  The giver, by making the referral, is building trust within the customer by recognizing a need and assisting outside their normal business scope.  The customer, by receiving the referral has saved time by receiving it from someone they already trust thus shortening their search effort (even if they need to evaluate multiple suitors – one down).  Finally, the receiver of the lead, a warm lead, is a sale that is theirs to lose.  It still takes follow up with the lead and making the sale – Sales is all about numbers – I call this an easy number.

LightsOn Graphics, unlike a BNI, brings different locals together under one brand, much like ACE Hardware.  It is a collaborative product that features exclusively local members locally.

Companies with multiple offices should always have a localization component within their website so they can feature the local components of their business (people, services. etc).

Bob

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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

An Internet Sales Tax - A Good Idea.?. - Terrible Political Execution.!.

This use to be an engineering joke, but fit many of our government bureaucratic proposals - like the Market Place Fairness Act..

I am going to be going off topic for my next 3 blog entries not writing about the standard Local / Printing / Advertising theme (saving the world one community at a time theme).  It's been a couple months since writing my last blog and there is a bunch in my head that needs to come out (a friend asked me recently, "when I shake my head, does it look like a snow globe").  "Internet Sales Tax" is the subject that just jumped out first.

The Internet sales tax - the way it is being proposed by the "Marketplace Fairness Act", is a bad idea and bad for business - all business.  Let it be known that I am not against an Internet Sales Tax, I am just against the way it is being proposed.  What bureaucrat, or lobbyist, could have proposed this method? And the free, easy to use automatic software? None are free - the best I have found has transaction based fees. And automatic (??#>@#) - please...  I was in the automation software business and, unless I am selling it ( :) ), automatic is never free, or easy. 

This is not about the Overstocks", "Amazons", NewEggs or Dells. Its about the 15-100 employee company that is being singled out and burdened.  Remember, I am Pro-Internet sales tax. As I have said before, the states currently do not collect anything (very little from personal use-tax) now in "cross-state-border" commerce. The states are not losing anything (as I also believe they won't be gaining anything from this). I believe that there should be NO MINIMUM (see I am pro) and the making of a federal sales tax form that accounts for interstate sales tax only (of course, only for states where the company does not have an office). A five line form ('Sales' minus 'sales where tax was collected for any municipality' minus 'tax exempt sales' = interstate taxable sales). I don't care where the money goes.... redistribute it back to the states as a windfall (this is not about the 'how' and 'who' of the gift horse - I would rather see our one federal government rather than 20 million businesses have to address this distribution) -or- let the feds keep it (makes more sense to me as as it crosses state lines - Kinda like the FBI). Think about the enforcement !! if it is even possible... Last quarter one of my businesses would have had to report to 17 different local municipalities with an average sales tax collection of $3.25 (if it met the $$ minimum qualifications)... Does anyone see the problem with this? Not the guy that has the "use-based-fees" free automatic software - I hope I am not the only one laughing now....

Very simply, under the new proposed regulations, if a business ships to a different state other than where they are located (or have a location), they will have to do a sales tax return for that state.  Sure, they exclude businesses under a certain size (why, I don't know), but the issue is creating a need to create 46 new returns (at a minimum) for a $1MM business - that's not a big company (10-12 people in most cases).  Oh yea, there is "free" software that handles this "automatically" -

If this is passed, business will ignore it - much as people ignore the current "use tax" which people are supposed to pay when they buy something that is shipped from out-of-state and no tax was collected.  Both of these are ridiculous and unenforceable (Montana is not going to send someone to your business's door in Florida to collect the $10.50 you did not send them).

I also disagree with the other side; E-Bays approach.  They are obviously against an Internet sales tax suggesting at least a raise in the "exempt business size".  In the email they blasted out to their user base (that is just about everyone I think) E-Bay (CEO John Donahoe) stated "Congress can instead support small businesses by making a simple modification to the current bill: exempt small businesses with less than 50 employees or less than $10 million in out-of-state sales".  E-Bay suggests you send this letter to your congressman which they conveniently pre-wrote and provided a link. (Feel free to use and express your opinion).

There are good alternatives as well - like this writer who simply proposes all sales taxes be collected at "point-of-sale" rather than "point-of consumption".  Not my approach, but much better than what is being proposed around congress currently: reason.com/archives/2013/05/01/are-online-sales-taxes-only-fair

Bob