Small Business For Dummies

Eric Tyson, Jim Schell

• Publisher: For Dummies
• Year: 2018
• ISBN:
  9781119490449
• Edition: 5
• Topic: Negocios y empresa
• Subtopic: Pequeñas empresas

Make big sense of small business

Small Business For Dummies has been a leading resource for starting and running a small business. Calling upon their six decades-plus of combined experience running small businesses, Eric Tyson and Jim Schell once again provide readers with their time-tested advice and the latest information on starting and growing a small business.

This new edition covers all aspects of small business from the initial business plan to the everyday realities of financing, marketing, employing technology and management—and what it takes to achieve and maintain success in an ever-changing entrepreneurial landscape.

• Write a strategic business plan
• Start, establish, or rejuvenate a small business
• Hire and retain the best employees
• Get a small business loan

If you're a beginning entrepreneur looking to start and run your own small business, this book gives you all the tools of the trade you'll need to make it a success.

Part 1

Getting Started with Small Business

IN THIS PART …

Test your entrepreneurial aptitude and see if you have the right stuff to start and run your own business.

Assess whether your personal finances can withstand the strain of starting a small business.

Determine which business niche is right for you.

Turn your dream into reality with a well-designed business plan.

Survey financial and ownership options.

Chapter 1

Is Small Business for You?

IN THIS CHAPTER

Understanding the role of small business

Determining whether you have what it takes to successfully run a small business

Reviewing the reasons to own (and not to own) a small business

Identifying alternatives to starting a business

An old friend of ours, who has been a small-business owner for more years than most of us have been alive, says, “Small business is a place where you can take your dog to the office whenever you choose.” That’s one way of looking at it, but we offer several other viewpoints as well.

Owning and running a small business can be rewarding — personally and financially — but only if you have what it takes to succeed. This chapter gives you all the know-how you need to be sure that you’re making the right decision. In it, we pose a series of questions to ask yourself about your skills, talents, and abilities. If you’re honest with yourself — don’t worry, there are no right or wrong answers — this test can give you the information you need to determine whether running a small business is the right move for you. If you find that running a small business isn’t for you, we provide several alternatives, which may give you exactly what you’re looking for.

Lots of important issues — from your financial situation to your desire to create a needed product or provide a needed service to your ability to be a jack-of-all-trades — should influence your decision to become an entrepreneur. This chapter helps you understand the realities of starting and running a small business so that you can figure out how and why it may or may not work for you.

Defining Small Business

The lingo of the business world — cash flow, profit and loss statements, accounts receivable, debt-to-equity ratio, and so on — makes small-business ownership appear far more complicated than it really is. Don’t be fooled. You’re probably more acquainted with the basic concepts of doing business than you think. If you’ve ever participated in a bake sale, been paid for a musical performance, or operated a baby-sitting, painting, or lawn-mowing service, you’ve been involved in a small business.

Being a small-business owner doesn’t mean that you must work 70 hours a week, make a six-figure income, or offer a unique product or service. We know many successful small-business owners who work at their craft 40 hours a week or less and some who work part time at their business in addition to holding a regular job. The clear majority of small-business owners we know provide products or services quite similar to what’s already in the marketplace and make reasonable but not extraordinary sums of money — and, thanks largely to the independence that small-business ownership offers, are perfectly happy doing so!

Small (and large) business basics

Imagine back to your childhood … it’s a hot summer afternoon, and you’re sweating it out under the shade of an elm tree in your front yard. “Boy, it’s hot,” you say to yourself, sighing. “I could sure go for a glass of lemonade.” Eureka! With no lemonade stand in sight, you seize upon your business idea.

You start by asking some of your neighbors if they’d buy lemonade from you, and you quickly discover that the quality, service, and location of your proposed business may attract a fair number of customers. You’ve just conducted your first market research.

After you determine that your community has a need for your business, you also have to determine a potential location. Although you can set up in front of your house, you decide that your street doesn’t get enough traffic. To maximize sales, you decide to set up your stand on the corner down the road. Luckily, Mrs. Ormsby gives you permission to set up in front of her house, provided that she gets a free glass of lemonade. You’ve just negotiated your first lease (and you’ve just had your first experience at bartering).

With a tiny bit of creativity and ego, you determine the name of your modest business: The World’s Best Lemonade Stand. After some transactions with the grocery store, you have your lemonade stand (your store), your cash box, a table, a pitcher (your furniture and fixtures), and the lemonade (your inventory). The World’s Best Lemonade Stand (your brand) is now ready for business!

From the moment you first realized that you weren’t the only one who may be interested in buying some lemonade, you faced the same business challenges and issues that all small-business owners face. As a matter of fact, the business challenges and issues that a lemonade stand faces are the same that American Express, Boeing, Costco, Disney, and every other big company faces. The basics of doing business are the same, no matter what size the business is:

• Sales: Boeing manufactures and sells airplanes; you sell lemonade. A sale is a sale no matter what the product or service is or how large or small the ticket price is.
• Cost of goods: Boeing buys parts for its vendors and suppliers; you buy lemons, sugar, and paper cups from the grocery store.
• Expenses: Boeing has employee wages and pension plans (or employee benefits; see Chapter 17); you have sign-making costs and bubble-gum expenditures to keep your employees happy (also a form of employee benefits).
• Profit: Profit is what’s left over after Boeing subtracts the cost of its goods and expenses from its sales; the same is true for your lemonade stand.

Financial basics: The same whether you’re big or small

Not only are the concepts of Business 101 — sales, cost of goods, expenses, and profit — the same for all businesses, regardless of size or product offering, but many associated financial basics are the same, too. Here’s what we mean:

• Accounts payable: Boeing owes money to its vendors who provide it with parts; you owe money to your local grocery store for supplies.
• Accounts receivable: Boeing has money due from its customers (major airlines and governments) that buy the company’s airplanes. You have money due to you from Mrs. Huxtable, who wandered by thirsty without her purse.
• Cash flow: Boeing has money coming in and going out through various transactions with customers and vendors (sometimes cash flows positively, sometimes negatively), and so do you. (See Chapter 14 for much, much more on this important, but sometimes murky, concept.)
• Assets: Boeing has its manufacturing plants and equipment, inventory, office buildings, and the like; you have your lemonade stand and cash box.
• Liabilities: Boeing owes suppliers money; you owe money to your local grocery store.
• Net worth: Net worth is what’s left over after Boeing subtracts what it owes (its liabilities) from what it owns (its assets). Ditto for your small-business enterprise.

This comparison between The World’s Best Lemonade Stand and Boeing can go much deeper and longer. After all, the basics of the two businesses are the same; the differences are primarily due to size. In business, size is a synonym for complexity.

So you may be thinking, if business is so simple, why isn’t everyone doing it — and succeeding at it? The reason is that even though the basics of business are simple, the details are not. Consider the various ways in which you grant your customers credit, collect the resulting accounts receivable, and, unfortunately, sometimes write them off when you’re not paid. Consider the simple concept of sales: How do you pay the people who make those sales; where and how do you deploy them; and how do you organize, supervise, and motivate them? Think about all the money issues: How do you compile and make sense of your financial figures? How much should you pay your vendors for their products? And when you need money, should you consider taking in shareholders or should you borrow from the bank? And, lest we forget, how should you deal with the Internal Revenue Service (IRS), the Occupational Safety and Health Administration (OSHA), and your state’s workers’ compensation department? These are but a few of the complex details that muddy the waters of business.

SMALL BUSINESS BY THE NUMBERS

The Small Business Administration defines small business as any business with fewer than 500 employees. To us, that seems a bit large. Consider this: Coauthor Jim’s fourth small business had 200 employees. With 200 employees, you have, say, 400 dependents, maybe 1,000 customers, and 100 or so of the business’s vendors all depending on you, trusting in you, and waiting for the mail to deliver their next check. That certainly isn’t small by our standards — not if you measure size in terms of responsibility anyway.

For those of you who like to work with numbers, our definition of small business is any business with 100 employees or fewer, a category that includes more than 98 percent of all U.S. businesses.

The latest year’s U.S. government figures show that the country is home to 28 million small businesses. Of those, approximately 22 million have no employees. Meanwhile, hundreds of thousands of new businesses open their doors each year. This kind of growth is an indicator of the appeal of owning a small business. (Or maybe it’s an indicator of the lack of appeal of working for someone else.)

Not only do small businesses create opportunities for their owners, but they also create jobs. In fact, small firms create about three-quarters of the new jobs in the United States.

What all these numbers mean is that small business isn’t really small — it’s large, diverse, and growing. Not only is small business not small when speaking in terms of the sheer numbers of smal...