How to Run a Successful Small Business
With the proliferation of the internet, almost anyone can start a small business. Yet, with 20% of small businesses failing in their first year and another 50% within their first five years, it can definitely be a daunting and intimidating undertaking. Running a small business can be easy, but running a successful small business requires hard work, effort, time, and a dash of luck. We’ve compiled the ultimate guide on how to run a successful small business.
Many people, especially younger individuals, are turning towards entrepreneurship over corporate America. They feel that corporate America does not fully understand their needs and is too bureaucratic. Entrepreneurship, however, offers them the flexibility and opportunity to be their own boss and to control their own destiny.
For our usage, a small business will be defined as one with less than 250 employees and one that is privately owned. We will also not distinguish between physical brick-and-mortar stores vs. online retailers.
Start With Your Own Money and Then Some
From the get-go, you want to be self-financed and not beholden to anyone or any entity. Many small businesses begin their journey with the help of small loans, whether through a bank or a small business loan. These small businesses believe that they will be able to repay the loan monthly and once their loan is paid in full they’ll be able to pocket those costs.
On average, small businesses take anywhere from six months to several years to become profitable. A bank loan will need to be paid monthly and when profits have not yet been achieved, having a monthly payment hanging over you will make things many times more difficult.
While in some instances taking out a loan would make the most sense, it is definitely more prudent to begin with your own money.
In addition to the start-up capital required, you will want to have enough cash reserves for your own living expenses. This amount and the amount needed to begin the business will need to be calculated before you even begin on the journey.
Have a Business Plan and a Backup Business Plan
Unless you’re starting a non-profit, your end goal with this endeavor is to make a profit. With that said, you need a plan on how to make money and how to make enough money that you can pay yourself.
You’ll want to begin by going through every possible business expense. These are monthly, reoccurring expenses, not one-time fixed costs such as a television to showcase your menu items.
Generally, monthly reoccurring expenses are along the following lines:
- Employee compensation
o Payroll taxes
- Material supplies
o Business insurance
o Auto insurance
- Vehicles and driving expenses
o Vehicle payment
- Office supplies
- Professional services
- Loan payments
- Advertising and marketing costs
- Professional association fees
- Travel expenses
o Taxi/car rental
o Business meals
Once you’ve determined your monthly reoccurring costs, you should add an additional buffer between 10-20% for incidentals. While one month the company vehicle may work fine, the next month it can be in the shop needing a few thousand dollars in repairs.
From here, you’ll want to calculate how many items you’ll need to sell monthly in order to break-even on expenses. This will give you a realistic estimate as to whether or not your business can be successful. Having $10,000 in monthly expenses while only projecting daily sales of $500 won’t work. You need to be extremely precise and realistic here. If the numbers don’t appear to add up, then they probably won’t.
Protect Yourself and Your Business
The beginning of anything new is always an exciting time. But you need to make smart, rational decisions, especially when it comes to your financial future.
To begin with, you will want to form a corporation or limited liability corporation to reduce your liability in case of fault. Now, I am not a lawyer so don’t take this advice as sacrament, so I advise a consultation with a licensed attorney in your area who can help you with the initial setup. You want to protect yourself from the beginning. By forming a corporation or LLC, you can limit your overall liability. Again, speak to a licensed attorney in your area for additional information.
Your Word Is Your Bond – But Put It In Writing
It’s easy to get excited about a potential sale or deal that you don’t get it in writing. You begin work on a project and right as you’re about to finish, you see that the buyer has backed out, leaving you with unsold inventory and a sour taste in your mouth.
You can avoid this from the beginning by maintaining that all sales, regardless of price or volume, must be agreed upon in writing. While verbal contracts are, at-times, enforceable, they are much more difficult to prove. A written contract clearly outlines expectations and deliverables which both parties must adhere to.
Start Small and Excel In Your Niche
You want to be the best at what you are providing. As a smaller business, you do not have the resources that many larger companies do. You must focus intently on your niche and excel there.
You won’t overtake Google or Facebook, but there are a plethora of services you can provide as a singular expert that the giant corporations cannot. Your services are sought after because you provide that personal touch and that expertise in a singular or narrow range.
Don’t Sell Yourself Short – You’re Worth Every Dollar
I’m not saying to overprice or to charge exorbitant rates, but you should price your services or your goods at reasonable and respectable rates.
You may think that as the new kid on the block, you need to lower your prices to convince customers to switch to you. And while that is a viable marketing tactic in the short-term, you’ll need to know when to raise rates to make sense for your business.
A Business Is Only As Good As Those Who Know About It
From the very beginning, you need to market your business as thoroughly and as often as possible.
While you may not have a large budget to begin with, you can look for creative and inspiring ways to get the word out. Offering incentives, reaching out to other local businesses, and going door-to-door introducing yourself are all low-cost marketing methods.
The best business in the world can go out of business without proper marketing and awareness. Your job is to get customers into the doors and to spend on your product. Do this as effectively and as cheaply as possible to increase your chances you’ll make it past the five-year mark.
Be Cheap When You Can
Now, I’m not saying to be cheap on everything, but you should look to save costs as much as possible, wherever possible.
Do you need that new company truck, or can you get the slightly used one? Do you need 300 channels from your cable provider when you’ll only be switching between a few channels? Do you need a top of the line computer or can a mid-range one get the job done?
Again, I don’t know your business or your business needs. Only you know that. So be honest with yourself on what you do and don’t need and manage accordingly.
Hire Right, Fire Right
This is always a touchy subject, but your employees are the ones who will determine your success. They will be manning the front lines and interacting with customers on a daily basis.
From the beginning you need to hire the right individuals, with the right mindset. Every potential hire should be thoroughly vetted and interviewed. You should follow-up on their references and make sure that they are a good fit for not only your business, but your team as-well.
However, if you make a hire that doesn’t fit well with the team, the environment, or the business, you need to not be afraid to let them go. Give constructive criticism and ample time for them to change things around, but if after a designated period you are not seeing improvement, then you need to do what is best for your company.
Listen to Your Customers and Iterate Constantly
Your customers want you to succeed. If they love the product or the service, they will come time-and-time again. So, listen to them.
You should always be talking with customers, seeing what is and isn’t working. Once you have identified a problem area, fix it immediately and get feedback on the fix.
Listen to your customers and provide them with what they need and they will be loyal for years to come.