Small business: doing, not being

Early retirement?

Early retirement?

One of the advantages of having my own business is, I have always thought, that I am doing something I enjoy and having responsibility for my own working life. In fact, having responsibility for all of my life.

In employment, we may think we have a career, but if we work for someone else, however ambitious we are, we are always going to be dependent on other people’s opinions about us, right or wrong. There will always be an element of “seeing out our time” until we retire. That amounts , at best, to being on a ladder to climb in the world of employment, and at worst, a treadmill. I am not sure where I used to be before being unexpectedly ejected, but I cannot say the overall experience of employment was entirely wonderful, though I had some fun.

To me, having my own businesses means I am in control of my own destiny.

The other day I was sitting in a waiting room talking as you do to a guy I had met briefly a couple of times before. Our appointments were running very behind so we had quite a long time to chat. My companion told me he had retired at the age of forty-seven and taken a pension, which meant he had been retired for fifteen years. I guess he was fortunate to have one of those old-fashioned final salary pensions which we all wish we had or could qualify for.

I know the guy has a serious hobby working with wood, but it is not a business. So is working with a hobby doing, or is it just being? If he had run even a part-time business for the last fifteen years would that have been more in the way of doing? Should not we keep ourselves sharper by doing?

I cannot imagine not working at something even if it is voluntary work, because surely we should keep our brains active? Is having an activity without a beneficial end result for someone else not doing, but just being? I do not want to judge my new acquaintance, but just to understand him.

Would you just like to be or do you always want to do?

Why we need the assurance of business insurance

26 Feb 12 upload 011It seems obvious that we should insure our houses and our house contents. We have to insure our cars by law. Strangely many people do not believe in insurance for their businesses.

Of course it is true that many contractors under the control of other people or businesses (such as builders) have to have their own Public Liability Insurance. Many business owners, worried about the cost, skimp on this. Yet the insurance is not expensive. The consequence of not having it can be catastrophic if a customer has an accident and sues, because the cost of defending can be disastrous.

If a mistake in the work we do can result in a loss to a client, we need to be insured against that. Professional Indemnity Insurance covering being sued for at least a few hundred thousand seem sensible. I wouldn’t be without mine, though, touch wood and taking care, I have never had a claim. Again, even if we have done nothing wrong, the cost of defending an action can be terribly expensive and destroy a business, and maybe our wealth.

If we have a business with particular employees or of course ourselves as owners, we can insure against loss of their services in what is known as key-person insurance. It is intended to compensate for business losses in case the important person dies or is unable to work again due to illness.

I insure against loss of business income if I were to be ill and unable to run my practice. Shouldn’t everyone?

You and I may never have a loss of someone’s services or be sued, but you never know. Most of us keep an umbrella handy, don’t we? Why should we leave our businesses and our income open to the elements?

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A successful small business owner learns by experience


Risk to cash-flow

Risk to cash-flow


I used to work for a large firm of accountants once. They actually called themselves “Accountants and Business Advisers”. The firm held itself out as specialist accountants for small businesses and “SMEs” (Small and Medium Enterprises”). Quite honestly. I am not sure we staff were much good as business advisers because we had never been in business. I doubt whether many of the hundreds of partners knew much about business either. They all specialised in something. Only a few partners actually managed the firm’s business; the Managing Partner of the whole firm and maybe one partner in each office. The others did what they did and shared the profits, but they did not run a business day-to-day.

When I left my employment, I spent a lot of money training as a “business adviser”. I learned how to call for specialist help if I found a small business needed it. Of course they needed to be convinced they needed help, and if they accepted they did, that they needed it from me. I was not initially at all successful in getting work. That was when I really learned what running a business was like.

Hard Lesson

It was a hard lesson too with no money coming in. Cash was very limited. I had to find something I could offer that businesses actually wanted. I also readjusted to think what I could offer the public as well. I had to get some money in.

I decided to combine my knowledge acquired over many years as a tax specialist, and look for opportunities to advise both on tax and business matters. I had acquired a much greater knowledge of what businesses need to work well. The most important is cash flow of course. I also had learned along the way how to market my own business. That helped me to see what marketing other businesses needed.

I am not an specialist marketer. I know a few people who are pretty good at that, so I could refer on my trusted clients. Over the years I have acquired more skills myself, but at the same time found others to help my clients.

Linked out

In the UK there used to be something called Business Link, which was a government initiative. It was partly staffed by various people retired from their jobs, such as ex-bank managers. I am sure they were all well-meaning, but they had never run a business. They made suggestions, but never saw any issue from the business owner’s perspective.

If you offer a solution to most small businesses the owner will say:

  • How much will it cost?
  • What is the value to my business (what’s in it for me)?
  • What is the risk (that it will not succeed or that I will lose money)?

Of course if we are offering a solution, we know that the way to get past the cost issue is to show the value. However, it is the risk that any business owner will worry about. Whether the “solution” will cost more than the benefit, and most importantly, what is the risk to cash-flow and profit. A bank manager would not understand that, and neither would most partners and staff at my old accountancy firm.

Practice makes perfect?

We learn from others in business and we should always look to do so. We should know when we need help and ask for it. However the only way you, I and everyone else can know what it is like to run a business is by doing it. That is the biggest lesson of all, don’t you think?

Do you really have a business? Part 4

A business lost

A few years ago I said I would help a friend who was thinking seriously about buying a nightclub or “venue”; that is one which had live entertainment.

Of course I was happy to help my friend, and said she should ask for copies of the recent accounts produced for the business. What she received and sent to me were records which had been obviously compiled by the owner overnight using QuickBooks, and which in my view were entirely fictional. It was clear that they left out not just a lot of the more obvious expenses such as the bar cost; hardly any beer purchased compared with that sold; but also hardly any staff costs (either left out or paid in cash, no questions asked).

My friend did not understand that side and she was looking to part with nearly £100K.

So here is a tip. If you are looking to buy an existing business, even a small one, ask for certified copies of accounts from a reputable firm of accountants or tax advisers. If the owner is a DIY bookkeeper-accountant, ask your professional to go through the books and give an opinion as to whether they add up not just numerically, but in a business sense.

Don’t part with your hard-earned money until you know what you are buying and how much it is really worth. Buying a business is one of life’s big decisions. You need to get it right, don’t you?

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Do you really have a business?

What shall I do?

Leaving jobs

I see many small business owners during the course of a year. Some are ongoing clients and others need advice but not a continuing service.

In the current economic climate there are many people who have been made redundant. Some have received quite substantial redundancy payments in recognition of long service, or they have been able to draw down a considerable amount of cash from their pension pots. Many recognise they will not be able to get another job if they are over 45, or at least they will not get another job they will feel comfortable taking.

Fields of dreams

So many of us, and I include myself, have had dreams of running our own business. We may have some cash from our former employer. Now must be the time to start a business, surely, if we have just finished employment? Even with a recession, there must be an opportunity to realise those dreams?

Often there is a niche if we can just find it. Perhaps it is something which has not been done before. It may be something which can be done from home, such as drop-shipping in a particular specialised product. Such a business is capable of expanding considerably to the extent that it may need premises, but the business will not be limited by the premises themselves. If we have the knowledge and skill, we can make a lot of money.

Confined spaces

However, some businesses are limited by the premises; that is the shop or retail outlets they have. In particular, catering businesses have particular challenges. If a café is in a busy thoroughfare, the rent is likely to be high and the competition fairly fierce.

I was once consulted by the owners of a sit-down diner in a seaside town, but with many other cafés in the immediate area. There were very obvious problems:

  • The rent was considerable because of the location and the size of the unit.
  • The heating bills in the winter were large because of the size; they were on two floors.
  • They were not getting in enough people because of the competition and because they were not better or different from the others.
  • They had to employ a number of staff because of the requirements to wait on tables.

The café was losing money fast and their current model couldn’t survive. The solution I offered was to sub-let their first floor as an office for which there was already planning permission in place, and to get rid of most of the tables and (unfortunately) their waiting staff. They needed to run as a fast food and sandwich bar for the many people walking past. There was only one potential competitor doing that.

Train wreck

Sadly the café proprietors ran out of money before they could follow my recommendations and they went out of business. They lost their life savings. It need not have been that way if they had thought in advance about their business model. They didn’t need a sophisticated plan. All they had to do was to add up their outgoings and do some research as to what sort of café would have been most lucrative with a higher margin. In busy business and seaside streets that is generally sandwich bars and hot food takeaways. At the seaside you can combine the two if you do it right.

Planning is everything, isn’t it?

Photo credit: seq Jehane

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Redundancy at 50 or even 45 – Part 2

The man who fell to earth

We discussed the other day our accountant who has been unemployed for three years and is now 50. We have heard about the dramatic drop in income, about living on cheap food, the problem with one of the two teenage sons (not a happy thought), the selling of cars, and living off benefits including the £400 a month from JobSeekers Allowance. That’s a lot and must be because both husband and wife are getting it.

Ritual humiliation

When I was first unemployed the Jobseekers allowance was an insult and a humiliation; turning up at the Jobcentre every fortnight, going through a hopeless ritual with someone sitting behind a desk who checked you had filled in your card correctly. Both of you knew it was a farce. They had nothing to offer.

I dutifully recorded every job application I had made, and every enquiry over the telephone cold-calling for an interview. The longer it went on, the more soul destroying it was. Psychologically I got through it by thinking in my old charge-out rate terms. I got £60 a week for twenty minutes humiliation every fortnight, which if I thought about it was £360 per hour. That as a pretty good pay rate. The trouble was it was only £60 a week at the end of it.

At the beginning of my unemployment my lovely wife of only a few months was still working. I was prepared to do anything and my only consolation was that when I was made redundant I still had most of a year’s gym membership paid for. I spent a fair amount of time in the gym which kept me sane.


In the end it sunk in that I was not going to get a job without having worked at something since my last job. Also. I needed some money urgently. I was not getting anything more from the State. I wonder if for people like the Daily Mail accountant, there is a benefit trap which discouraged him from doing some sort of work even if it wasn’t accountancy? I had no such disincentive to work. I had no money coming in, my wife was finding her work more difficult physically, and I hardly married her to live off her earnings. I was the big breadwinner when we met. She might have thought she had “bought a pup” if she had been a less lovely person than she is. Of course she has supported me every step of the way, including financially at one stage.

As you know, I started a business and the rest is history. Except of course it is a complicated history in that firstly I thought it would help get me a job working for someone else, and then I realised that I never wanted to work for someone else again.

My advice to the unemployed accountant and to anyone in that situation is to make an effort to start some sort of business he can do from home. It is all very well complaining about eating cheap food (but the accountant’s chicken casserole to last three days sounds fine and a bit of curry powder will vary it by day three) but what about doing something? That something may be the current experience that gets him a job if he still wants one. Otherwise the business will bring some self-respect, provide some income he can say he earned rather than drew from the State, and may help him plan his future even if that future isn’t the one he was planning just over three years ago.

The new business may be different from the work he did as an employee. If not very different at the start, it might evolve. Mine has.

No more sob stories

I wouldn’t say it isn’t tough finding that employers don’t want us with all our skills. It

All that choice…

is their loss, though. If we sit at home and mope we won’t improve our situation. That is a reality, not some sort of pep talk.

Cheap food? Been there and done it and you can live very well on cheap food, and even have a better diet. Old car? Yes, so what? Forget about the status statement and be practical like the rest of us.

Our 50-year-old accountant was featured on a TV programme which I missed and which is no longer available on-line. I hope his writing a book will bring him some money. Has he started a business? He should. I just hope he gets on his bike. We have, haven’t we? What did you do?

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Business partnerships and collaborations – Part 2

Love and marriage

In Part 1  I said that a business partnership is like a marriage. It joins together two or more people in a close relationship in which they have to co-operate and work with each other.

In any relationship, things may go wrong. There may be a breakdown in a personal relationship between the partners. There may be a major disagreement on a business issue, which may be about the direction a business should go, or about finance or about responsibilities for different aspects. Sometimes these disagreements cannot be resolved. If everyone is arguing, sometimes a relationship cannot be fixed.

Business pre-nups

Now in a marriage, I think pre-nuptial agreements are mostly not a good idea because they indicate a lack of trust between the prospective spouses. I can see why some wealthy parties might want one of course, but my feeling is if you don’t trust someone, don’t say you will commit the rest of your life to them, or anticipate that you will split up.

However, in business relationships I think a pre-nup is essential, because it lays down the ground rules for the the future. A business pre-nup takes the form of a partnership agreement or for a limited company, a shareholders’ agreement. Generally it will lay down who puts what in in terms of cash and who gets what out in drawings etc.. It may go into quite a lot of detail about how the profits are shared out between the participants.

Partnership and shareholders agreements should also say what will happen to the finances of the business is sold, broken up or if a participant wants to leave. The agreements will provide certainty when the participants are moving on for whatever reason, and will avoid involving lawyers and engaging in expensive court cases.

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A partnership agreement can help a business relationship to be plain sailing (Photo credit: Jon Stow)

Make it legal

A partnership or shareholders’ agreement will be need to be drawn up by a professional, which means a lawyer, and like everything else worth having will have to be paid for. All too often I have seen agreements by amateurs proving useless when partners have fallen out. Even worse, unscrupulous partners have exploited the naivety of their more trusting former colleagues to extract far more money than they deserved. I could be more vulgar about this because it is sickening to see.

Breath more easily

Any business collaboration can be very satisfying and last a lifetime. A proper legal agreement between the parties should be seen as an insurance and not as an indication of lack of trust.

Who wants to be a hostage to fortune in business or in life? We cannot plan for everything, but there are some disasters we really can avoid with a little foresight?


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Being cheapskate can cost you dear

Avoid the dabblers

It is a great temptation in business, especially for start-ups, to take the cheapest option when spending money on buying in services. It is very often dangerous to do this because some people just play at business.  Often the really cheap option will be a part-timer who does not depend on the part-time earnings to make a living.

A part-timer might be a dabbler; a student who likes building web pages but only when he is not out having a drink with his friends, or an employed “bookkeeper” who works on sales ledgers beyond her comprehension a couple of evenings a week. These people are unreliable because they don’t depend on the money you pay them, they may not be up to the job and they are easily distracted so will not give your work their best attention.

We all need to remember to see the value in services we buy in, know what we expect and how much added value to our business we will gain.

If you don’t know who to engage ask for recommendations from those who have bought the services you want. If they are not happy with their suppliers they will tell you so you will also find out who not to employ.

One of my clients ended up paying a fortune to have a good bookkeeper repair the mess left behind by the cheap part-timer. A friend had to get someone else to start again with his website when the dabbler disappeared back to Uni.

You can’t beat a great testimonial for your new service provider. Phone a friend if you are not sure.

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Doorstep selling in the twenty-first century

A book worth reading

These days I mainly work from home though obviously I go out to visit clients and those who are providing me with support services to help me run my business. One of the hazards of being home-based is being “doorstepped” by people selling products and religion. I am not sure how well either tactic will have worked in the past, but it certainly doesn’t work with me. I probably haven’t given much thought as to whether I need whatever is being sold and even if I had I would want to shop around for the most suitable deal which might not necessarily be the cheapest.

When I started my own business for the first time I went on sales courses which involved learning the techniques of hard selling, getting prospects to sign up for business advice or whatever on the basis of a visit arranged by an appointment maker. I wasn’t very good at the hard sell, or maybe it was never going to work anyway because people are naturally resistant, as I would be when faced by a double-glazing salesperson I didn’t really want to see.

Whether or not the hard sell worked or still works for the sort of thing I do, I am very uncomfortable with it. I don’t like getting people out of their comfort-zone because that involves me getting out of my comfort-zone. And I only want to get out of my comfort-zone when doing something positive for my business by making a difficult but necessary choice which I can recognise. That might be buying-in marketing from an expert, or setting the legal dogs on a non-payer (fortunately rare).

I am not an expert in selling, but that is all right because my marketing brings me warm leads and referrals which are even better. Of course the referral business is a two-way street, but isn’t it great when you put together two people who need each other?

As we know that is the basis of selling really; having our prospects recognise that they have a need. I learned that partly for experience, but also from reading Zig Ziglar right after I found that the hard sell didn’t work for me. His folk wisdom of selling resonated much more with me.

In face-to-face meetings I rarely fail to close new business if I decide I want it and it is the right deal for the client. My new clients have identified their own needs and invited me to visit.

I have bought double glazing after seeing salespeople from three or four different companies. I had identified my own need and chose what I thought was the best product, which was not the cheapest deal offered.

I don’t think doorstep selling is very effective, whether physically on the doorstep or from other unsolicited calls. In difficult economic times I would have thought it of very little value. My concern is that it is only likely to succeed with those who are vulnerable such as the some elderly people and some more unsophisticated individuals. That makes it a rather unethical process. What do you think?

Planning a small business failure

Local shops need the right passing trade

I don’t always like to be right, but when a bookshop opened in our village, I really couldn’t see how it would stay in business for very long. It has lasted only about six months and has now closed. It really is very sad, and I can imagine the owner’s happiness at the start as I suspect he always wanted to run a bookshop. That sort of ambition in the face of stark reality is so often how these business misadventures start.

The shop stocked mostly local interest, remaindered and second-hand books. Such a shop would have to rely on passing trade and also would need to offer a choice not readily available elsewhere locally. Yet in the small “main drag” of the village there are three charity shops selling books (such is the state of local retail anyway), and those books will be of much the same variety as the bookshop had, including the local interest stuff, but of course much cheaper. And then there are the boot fairs and car boot sales to satisfy the second-hand book browser.

A bookshop needs to rely on regular browsing by visitors anyway, and like a website that means having visitors, because you need a fair number of those visitors to get enough purchases. Yet so much of the new and second-hand book market has gone on-line, in particular to Amazon, and many second-hand book dealers sell through the Amazon outlet; some grudgingly, but that is another story.

A shop has overheads such as business rates, and there will be a rent, because the landlord needs to have some return on his investment. The bookshop owner needed to ask those critical questions:

  • Do I have the right product?
  • Who is my market?
  • How will I get customers?
  • Can I afford the premises?

I don’t doubt that the proprietor had a dream of being successful and of being a fixture in the village. Starting a new business often has some risk and needs care. It doesn’t make sense to plunge our cash recklessly into a proposition which really has no chance because we have not done our homework.

However, like the road to Hell, the road to ruin is paved with good intentions. We need a proper business plan and to have someone with experience cast their eye over it.

Do you sometimes hate to be right?