A son’s challenge

guest commentary by David Potts

I was challenged this week when my son asked me to help him come up with an idea to start a new business. He has a job that pays well, provides health benefits, and has an excellent retirement plan.

My first question was “Why?” Apparently he’s surrounded by family members that couldn’t keep a job. I own my own business. Both grandfathers and one grandmother were business owners or self-employed, and his father-in-law owns his own company. I guess it’s natural for him to consider whether he should become an entrepreneur.

Advice is a dangerous thing to give, especially if you are wrong. As a CPA I see a lot of businesses that make money. I also see a lot of businesses lose money and fail. The consequences of a failed business can be costly to be owner: loss of face, loss of nerve, loss of financial security, loss of health, and even the loss of a spouse.

Sometimes a business owner will make money because he’s in the right place at the right time. Sometimes a business owner will fail because he’s in the wrong place at the wrong time. Owning a business comes with risks. So when my son asked me to help him come up with an idea to start a new business, I asked "Are you sure?"

In business magazines and television shows there seems to be a lot of advice given to people thinking about starting their own business to "follow your passion." I think it is more important to first ask themselves the question "how can I make money?" Peter Drucker said the purpose of the business is to obtain a customer. A customer is someone who is willing to pay you money for something they value. If I’m advising you about starting a business, I’m not going to ask you what you are passionate about. I’m going to ask you if you believe your business idea can generate enough customers with enough money to pay the business expenses and leave enough money for you to live better than you do in your current job or profession both now and in the future. Even before you get this far in your business plans, make sure you really want to be a business owner. It is OK if you don’t. But before you commit to a business, do some soul searching.  You might ask yourself the following questions.

Do you really want to go into business or do you just like the idea of being your own boss? If you own your own business you’re really not your own boss. Each and every customer is your boss.

Are you willing to work 60 and even 70 hours a week? Many a business owner has to work long hours in order to succeed. If your passion is hunting and fishing or playing golf frequently you might want to reconsider starting or buying a business, at least in the start up and growth stage of your business.

Can you deal with uncertainty? One certainty in business is that cash flow is uncertain. How well will your spouse react when you tell them that you can’t take a paycheck this week? Another thing certain in business is that things will go wrong. Customers file bankruptcy owing you money. Some employees will steal from you. Bankers turn down loan requests. If you want to own your own business you need to be able to handle uncertainty and stress.

After you decide being a business owner is right for you, what’s next? Next decide what type of business you want to operate. There are thousands of different businesses that a person can start. If you are passionate about something, see if you can develop a business related to this passion. Maybe you will be lucky and develop a profitable business model that advances your passion. It’s been my observation that you won’t continue to be passionate about something that loses money. So again, the most important question is do you believe your business idea will make money? Don’t deceive yourself.

Next, prepare a business plan … for yourself. Forget the business plan software and trying to come up with the “right” way to write a business plan. It is too early to be thinking about bankers and potential partners. This will come later. Just get started by asking yourself questions like “What business am I in? Who is my customer? How much money do I need to start?” At this point, think hard and critically. Prepare a financial projection to see how much money you think you can make. If your idea is not feasible, i.e, it won’t make enough money to be worth the time, start over with another business idea. What is important is that you think hard and critically about your potential business and how you will operate the business successfully. Just remember that it always takes longer and costs more than you think it will.

Once you developed your business plan, remember that nothing goes according to plan. But if you put in long hours of thought and research in developing your plan, you will be better able to make course corrections to make sure you get to where you intended because you have already considered most of your options.

Another consideration: are you creating yourself a job or are you creating a business. If you create yourself a job it generally takes your presence to make money. If you create a business, it is not dependent on your presence as much as your leadership. Read the E-Myth books by Michael E. Gerber and you will learn the difference.

I’ve been talking about getting into a business by starting a business from the ground up. For many individuals, the best option to becoming a small business owner might be purchasing an existing business or buying a franchise. The Greater Fort Smith Area has a couple of business brokers with businesses listed for sale. You need patience here. The right business for you might not be listed today. But with a little patience and discipline, you might find the perfect business for you.

I believe in small businesses, from the freelancer to the 500 employee organization. I believe it is this sense of industry and possibility and opportunity that made the United States the greatest country on earth. I believe small business owners will survive and prosper in spite of our government’s tendency to over regulate and peddle influence via lobbyists and large political contributors. It’s a good thing to own a small business.

When you succeed it adds a valuable dimension to your life. It’s my advice that if you have the desire to own a business, give it serious consideration. No guts, no glory.

About Potts
David Potts is a certified public accountant also accredited in business valuation. Owner of Potts & Company, Certified Public Accountants for more than 25 years, his practice focuses on small and medium size businesses and their owners in the areas of taxation, accounting and bookkeeping, business valuation and business advisory services. He is a Fort Smith native and a graduate of the University of Arkansas. You can follow more of his thoughts at ThePottsReport.com. Although every effort is made to provide you accurate and timely tax information, it is general in nature and not specific to your facts and circumstances. Consult a qualified tax professional to discuss your particular case.

Also, feel free to e-mail topic suggestions or questions to [email protected]