Jul 20, 2007

Tips on Succeeding With a Small Business

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This is part of a series of posts in which I dispense with knowledge and wisdom I acquired in a decade of slugging it out in the trenches as a small business owner.

For almost the entirety of the 1990s I owned and operated a group of franchised restaurants, and in that period of time I made many mistakes. As a 25-year-old entrepreneur when I jumped out on my own, I was filled with energy, enthusiasm, and - unfortunately - a lack of real-life experience beyond restaurant daily operations.

Of course, it is through the process of error that we often find our greatest insights, and I hope to pass along some of the expensive lessons I learned along the way. With this opening caveat out of the way, here are some items related to the running of a small business that I believe every business owner should take to heart.

1. Develop a monthly budget and stick to it. There will be many temptations to spend ahead, using receipts from next month. Don't fall for the allure of all that cash in your account after a big weekend: if you are at your budget, the purchase will have to wait until next month, or come out of another category.

2. You will have - and likely already do have - employees who want to rob you blind. Don't delude yourself with the idea that your employees are somehow above all that. A wise man once told me: "What gets measured, gets treasured," and you need to make sure your employees know you are always watching. Complete unannounced inventories, random audits of the books and petty cash, and regular verification of every person on the payroll. Be especially vigilant with late-night help, as they can start to think the boss is a 9-5 person.

3. You cannot possibly support every donation request. There are more people looking for donations than your business can afford, and you will have to make tough choices, especially when your customers ask for your help. If you must donate to a group, avoid giving cash if possible; merchandise will cost you less, and a small gift certificate donated to the group will require a sale to be redeemed.

4. Never, ever, mess with the IRS. Many years ago I ran into a horrible cash flow crunch, and my panicky, short-term thinking led me to defer some IRS payroll deposits. Bad move. Not only did I open myself up for outrageous interest and penalties, but I was on the hook for that money another seven years after I sold my business, slowly paying every free nickel I had to get the IRS off my back. You NEVER want the IRS as a business partner, because they can padlock you, file levies and liens, and make your life miserable.

5. Be ruthless in your wage scales and salaries. Yes, you want to change the world, and you think your people are being paid below the going rate for your industry. However, if you start increasing wages to bring your business "in line" with competitors, all you will do in the short run is drive up your costs. You are a small business owner, right? In time you will be able to pay top wages, but for now you will have to be a hawk on keeping labor costs in line.

6. Do everything you can to keep customers happy, but realize that there are a few customers you can do without. In an ultra-competitive market, business owners fear the loss of even one paying customer. Unfortunately, this thinking gets in the way of making rational decisions with regard to problem customers. Some customers simply want to screw you every way they can, and their loyalty extends only as far as your naïveté. Rectify problems when they occur, but beware of customers who have learned that they can get lots of freebies by complaining at every visit or transaction (this is especially true in retail). Keep logs of customer complaints to help you spot con artists, and feel free to encourage the scammers to visit your less-savvy competitors.

6 comments:

Anonymous said...

Also, if your business issues gift certificates, have fool-proof way to ensure that copies aren't being faked on someone's home computer. A restaurant-owner pal of mine got ripped off big time by that scam.

The owner of a very popular Toledo restaurant told me she suspected her employees were stealing from her, so to find out who it was she installed a camera overlooking the cash register. Turned out it was everybody. She said every employee dipped into the drawer (and she had a LOT of employees).

knicksgrl0917 said...

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Anonymous said...

Spam much?

historymike said...

Anonymous:

Had that happen to me, and you have to also remember that 16-year-old clerks rarely have the sophistication or nerve to confront suspected con artists.

Something also that I posted at ToledoTalk on the topic of owning a business:

One important consideration in being a business owner is having an element of ruthlessness, which goes against the nature of many people. Can you be willing to pay people less than you know they might make for a competitor? Could you, for example, fire a divisive, poorly-performing employee who happens to be pregnant (I couldn't; I didn't have the callousness). Can you face your staff and tell them that you have to raise their health-insurance contributions by $150 a month? Can you tell worried employees who just got robbed that you cannot afford an expensive video camera system that will pacify them, but will do little to prevent future robberies? Can you handle the prospect of laying off expensive-but-faithful employees in hard times, people who worked hard for you for five or six years?

These were some of the scenarios that made owning a business such a difficult life for me, and why my life is so much less stressful since I stopped being an entrepreneur.


Can YOU force yourself to go against your kind nature and do the ruthless? There will be times when it is necessary for your business to survive, and many business owners (myself included) find it difficult to be completely cold-hearted and rational when human needs are in opposition to business needs.

Hooda Thunkit said...

Mike,

You have the makings of a very valuable book here.

If only I had known/thought of this before my business venture, some 32 years ago.

I'd like to add:

When hiring, look past the pretty/sexy and go for the most qualified/competent person.

Advertising sales people are NOT your friends, they are jackals and they will (politely) pick the last piece of flesh off of your carcass, if you let them.

Cherish your best local suppliers and ignore the cheapo guys who couldn't care less about your business. Your local suppliers will often go out of their way to keep your business and deserve your patronage. You won't regret it.

Mad Jack said...

One important consideration in being a business owner is having an element of ruthlessness, which goes against the nature of many people.

Can you be willing to pay people less than you know they might make for a competitor?


Yes, and I'd be happy to do so.

Could you, for example, fire a divisive, poorly-performing employee who happens to be pregnant (I couldn't; I didn't have the callousness).

In a New York minute.

Can you face your staff and tell them that you have to raise their health-insurance contributions by $150 a month?

Look, health insurance costs are going up, so your part comes to $175 MORE a month.

Can you tell worried employees who just got robbed that you cannot afford an expensive video camera system that will pacify them, but will do little to prevent future robberies?

Pack a gat. No, I'm not kidding, and no, I'm not putting in some stupid fucking video system that won't do any good anyway. What are you going to do, tell the bad guy he's on candid camera or something? Pack your gat and when the pellets hit the windmill put some lead in the air.

Can you handle the prospect of laying off expensive-but-faithful employees in hard times, people who worked hard for you for five or six years?

Yes, but I wouldn't like it, and I'd do what I could to help them along. I'd give them a good reference.