A Few Harsh Truths About Business Ownership Everyone Forgot to Tell You — And How to Address These Challenges
Excited about your new venture? Excellent — I am too! I trust these are helpful caveats.
Already knee-deep into business ownership world and wishing someone told you a few more of the nasty things about it? I can relate.
You Will Likely Not Receive Any Funding
Many entrepreneurs and aspiring business owners develop a strategy contingent on receiving external funding — whether it be angel investors, VCs or bank loans. This is a flawed strategy since such a tiny percentage of companies receive any funding at all. Odds are — you are going to have to get this business off the ground using your own money, savings and/or ideally, cash flow from revenues. Of the millions of new businesses that form each year, maybe 50,000–100,000 raise capital via equity financing — and a hefty portion of those could be classified as angel investors, putting $5,000-$10,000 (hardly enough to really get things cranking) into your venture.
Bank loans are more common, but “business owner” is a curse word for lending institutions. Most bank loans will want to see consistent W2 income from your business. And it’s not the easiest task to get the business to a point where cash flow is consistent enough in the early stages to pay yourself bi-weekly. Also, even trickier, even with a W2, if the bank sees your W2 comes from an entity you own 100% (or even 20%) of and that entity is not immensely profitable, there will be concerns about the business’ ability to sustain your paycheck — and subsequently make it less likely to obtain a loan. Is financing possible? Yes — it happens frequently for many business owners and entrepreneurs. It’s far from a guarantee.
What Can You Do About It?
If you are contemplating going out on your own and you still have a steady paycheck at a company, use that W2 to secure a credit line or loan of sorts. Then, when you jump ship and move to starting your business, the line will be available to you. For existing business owners, balance W2 income and your company’s overall profit. Showcasing a smaller, but consistent W2 income and showing your company has ample annual profits after you pay yourself helps with improving your chances for traditional bank financing. Getting VC/angel money? I’ll need another article for this.
You Will Receive Lots of Well-Intended, but Non-Applicable Advice
The challenges and stresses of starting a business are immense. Often muted by the excitement and challenge of doing something new, eventually they will rise, and it will be very natural to seek out advice. There is good advice that exists, absolutely. However, much of it won’t be of much use — it is sensible but just not reality. Being told to ‘hire people’ when the bank account barely stays out of negative territory every month; suggesting to ‘get a loan’ (see first item); or ‘attend this event’ when it costs thousands of dollars, time away from the business and uncertain payback prospects. It’s well-intended, but just may not be in the cards now.
What You Can Do About It
Lack of time and elevated stress levels can make it very easy to not listen and just write off this advice as a zero. Take some time to read between the lines and put the advice through a more thoughtful evaluation process. Yes, if you are barely surviving and hardly paying yourself (common early on), then committing to hire someone else and commit a full-time salary is hardly palatable. However, the advice is correct — you do need help. Start outlining ideas on how this can become possible — at what level of revenue can you bring someone on? Are there internships with nearby colleges? If you construct a list of thoughtful answers and bring them back to the person that provided the advice, the discussion may yield more fruit. Even better, consider asking for advice by providing more context upfront or even track down a formal mentor/advisor to serve as your coach and board of directors.
You Will Spend Lots of Time Doing Things You Don’t Love
If you hate finance, accounting, administration, project management, compliance, marketing, public relations or technical support, you are going to hate some (if not most) of your time running your business. No matter what business you are in, these are crucial elements that all business owners will tackle and often must do without the assistance of others. Humans are unique creatures and have preferences — and nobody likes everything. Stories abound of people that found their passion and went into business for themselves — and ended up despising their passion due to peripheral items that go along with it.
What You Can Do About It?
Hire people right away for these things! Just kidding. A great step is to make a list of the business functions and take inventory of your skillset and interest in each of these functions. Explore options of what it may cost to outsource or bring someone on to handle these items at some point. This will provide a framework to help prioritize the importance and value of bringing someone on.
You Will Have to Stop Doing Certain Things You Enjoy
From spending times with friends on a holiday to giving up the reins on aspects of your venture, running a business means you’ll have to let go of some things that you do enjoy. Many weekend afternoons are spent preparing for the upcoming week; holiday evenings represent great opportunities to catch-up on business housekeeping. This means exchanging some fun times with friends and family to focus on business items.
Additionally, the same rule applies to running the business. As the organization grows and people get hired, it is wise to let that person take on the role he was hired for. If you love marketing and hired a marketing person, then you will have to step away from that responsibility. Business ownership can be fun but as the owner/CEO, your job description is not to have fun.
What You Can Do About It?
Use the flexibility you have as a business owner to relax and rejuvenate. Maybe Friday nights out with friends will be a thing of the past. However, switching those to a weekday lunch or teaming up with a friend on one of their ‘sick days’ to catch an afternoon sports game could be viable options.
If you are doing something you find fun for the business, ask yourself (or a trusted advisor), “am I actually good at this?” Humans derive much enjoyment from learning a new discipline — and yes, please continue to learn. However, when you have the capacity to hire a financial professional to assist with the company’s financial reporting, your time may be better suited in other aspects of the business versus learning on the job.
You Will Be the End of the Line for EVERYTHING
No matter what happens — the buck truly stops with you. Client usually pays you the 1st of the month? But is now on vacation until the 10th? Well, you are not getting paid until the 10th, at the earliest, regardless of your bills and financial obligations. Work not getting done fast enough because the client is swamped? It’s your problem. An employee left for greener pastures or you had to fire them for embezzlement? That’s on you, too. If you thrive in environment where you have an actual support system, business ownership may not be for you. Regardless of cooperation from clients, vendors, employee, family and friends, at some point, you will have to hold the line on an issue — and do it alone.
What You Can Do About It?
Remember that the sun will come up the next morning. Also, contingency planning for all scenarios can help mitigate the impact of these end of the line events. No, they will never go away entirely.