GREAT IDEAS FOR ENTREPRENEURS FROM THE THOUGHT LEADERS AT CASEY NEILON
HOW TO TAKE YOUR SMALL BUSINESS TO THE NEXT LEVEL
IDEAS TO ADDRESS THE TOP TEN CHALLENGES OF EARLY-STAGE ENTREPRENEURS
A while back, my wife and I became part owners in a local coffee shop. The entrepreneurs who started the coffee shop were friends and they were asking me for some advice. I found that we had so much in common and that I so enjoyed working with them that it only made sense to go to the next level with them. I’m glad I did this because through these experiences I’ve learned a lot about what early-stage entrepreneurs face.
While I have degrees in accounting and have been serving entrepreneurs for a while now, it’s my experience of actually being in a growing business that has given me a new-found respect for what start-ups deal with. After reflecting on these experiences, I’d like to share my sense of the top ten challenges for boot-strap entrepreneurs and some ideas to address these challenges.
The Boot-Strap Entrepreneur
Before I describe the top-ten challenges and my ideas to address them, I’d like to outline who needs this counsel. What I’m about to describe is primarily for boot-strap entrepreneurs. What’s a boot-strap entrepreneur?
- For the vast majority of them, this is their first time in business and they are learning as they go.
- They may be well-educated, but they often do not have degrees in the same industry as they work in today.
- They always had the entrepreneurial itch and may have grown up in an entrepreneurial family.
- They probably started their business after thinking deeply about a particular idea, approach or business opportunity for a long time and couldn’t resist turning that idea into reality.
- They have a willingness to take risk. Some people around them are amazed at how much risk they are willing to take on.
- They likely launched their business with little financial support and sometimes with only a small amount of seed capital that they put in themselves or got from friends and family. In the vast majority of instances, they are not financially backed by a bank or any other institution.
- They figured out how to make the business work, even though they didn’t know what to do at the start. They ground it out one day at a time, learning through trial and error.
- Success has been something that required a great deal of work, commitment and a willingness to keep going even when the path was not clear.
- They are often a family business or family members support and help run the business.
- They can’t afford all of the advice they know they need or the professional advisors who could really help them.
- They are not an expert in taxes, finance, leasing and equipment financing or managing operating expenses.
- Their business is now successful. They’ve had enough success to know that they need advice and guidance and that if they get this advice, it will cut years off their trial and error learning and get them to their next level a lot faster.
If this sounds like you or someone you care about, I think you’ll appreciate what I’m about to describe.
Boot-strap entrepreneurs shouldn’t go it alone. Get advice from people you trust and from a business coach. You’ll thank yourself later for doing this.
Top Ten Challenges For Boot-Strap Entrepreneurs
Here are the top ten challenges I see boot-strap entrepreneurs struggling with:
- How do we improve cash-flows?
- How do we handle budgeting and payroll?
- What accounting system should we use and how do we get good at using it consistently?
- How do we mitigate taxes?
- How do we handle the need for financing?
- How do we afford quality employees that we can trust?
- What kind of insurance do we need and why should we pay for it?
- How do we create a realistic vision for what our business looks like in 5 years?
- How do we work smarter and not just harder?
- How do we avoid burn-out?
How Do We Improve Cash-Flows?
More than likely, to improve cash-flows you’ll need to improve how you manage your cash on-hand and cash coming in, more so than increasing revenues. You probably don’t control how much customers buy and when they buy, but you do control your expenses and choices about what to buy and when to buy it.
First, look at payment terms with your vendors. Many vendors are willing to extend you more generous payment terms once you’ve established a decent payment history with them. If you’ve done this, don’t be afraid to investigate your options and to have the conversation. If you can move large payments in an average month to after your significant cash infusions, this alone can free up a lot of cash to help you avoid the crunch of not having enough on hand when a bill comes due.
Second, if you have clients and offer them payment terms, say the standard 30-day receivable, consider offering an incentive to pay early. In some instances, that can cost you very little and yet put more cash in your bank account at a time when you need it.
Third, make sure you track your cash-in versus cash-out history so you can identify cash shortfalls in the future. It’s the unplanned expenses that create unhappy surprises. The more you can see a cash shortfall coming, the better prepared you are to deal with it.
How Do We Handle Budgeting And Payroll?
For payroll, I recommend that you get a payroll provider. They are inexpensive, handle a ton of details you don’t want to deal with and they keep you out of trouble with missing tax deadlines. These services are available online and locally. I highly recommend them. This is also a way to ensure that your employees get paid on time, which keeps them happy.
So many boot-strap entrepreneurs don’t build a formal budget and I think that’s a big mistake. Don’t just do the numbers in your head. Build a formal budget. Do this in whatever toolset works for you. A lot of boot-strappers just use Excel and it’s great for that. I know that you know what your numbers look like, but that’s not enough. You’ll likely need to share the budget with other people who can help you improve it.
Once you’ve built your budget, share it with someone who can help you improve it. This is something I very much enjoy doing with my clients. I can look at 6 months or a year’s worth of operating expenses, ask some questions and pretty soon an entrepreneur has a new way of looking at things that might really help them. A close analysis of your operating plan by a qualified third-party can really help you.
One of your biggest expenses might be real estate and the cost of a lease. Make sure you have a good agent representing you, helping you investigate location options and negotiating on your behalf. This can save you a lot of money. If you’re doing this alone today, you are probably not getting the best deal or the best option available to you. Good agents can be worth their weight in gold.
What Accounting System Should We Use?
QuickBooks is the top accounting system for small businesses and I recommend it all the time. It is intuitive, inexpensive and ubiquitous. Most accounting firms can take exports of QuickBooks data and this can allow them to be a guide to you about how to get the most from QuickBooks.
To get good with this system, there are many options. QuickBooks offers online training and if you are highly motivated and have the time, you can learn pretty much everything you need to know from these options. But I also find that YouTube videos really help. There are a ton of YouTube videos on how to use QuickBooks and they tend to be pretty informative.
Finally, don’t be afraid to ask your accountant for tips on how to use QuickBooks for your specific needs. While your accountant may not be able to train you, they can point you in the right direction so you solve problems quickly.
How Do We Mitigate Taxes?
First, pay careful attention to the tax consequences of your entity structure. This can have a very substantial impact on your tax bill. If you started out as one type of entity – say a sole proprietorship – it may not be necessary to stay with that structure. In other words, just because you started as a sole proprietorship, that doesn’t mean you should avoid taking on partners and becoming a partnership.
Second, make sure you are in counsel with a CPA. Timing when you pay taxes can have an impact on managing your tax bill. For instance, if a tax bill is coming due and you also need a new piece of equipment, you might feel like you have to choose between the two payments. But there are more options available to you than you might realize.
Third, the new QBI tax deduction is also a consideration for many small business owners. The Tax Cuts and Jobs Act (TCJA) does allow for some pretty significant tax breaks for certain types of businesses. Learn more here.
How Do We Handle The Need For Financing?
First, my advice is to avoid most forms of debt, if possible. Debt creates stress for most boot-strap entrepreneurs because it’s another bill they have to pay monthly, in most instances. If you can cash-flow your growth, that’s probably the best. However, this is not always possible and in some instances, you actually can’t accelerate toward your next level without some form of financing.
Second, the options for financing a small business usually include:
- Yourself – the savings or assets you already own.
- Friends and family – who believe in you and want to support you.
- Credit cards – which are usually high interest and are in the name of the entrepreneur usually, not the business. Make these your last resort.
- Short-term loans – there are only a few good options for these, so proceed carefully.
- HELOC – home equity lines of credit often provide the cheapest access to cash, but they also tie up resources that you might need for personal reasons. If you don’t own a home or have a high first mortgage, obviously this is not an option.
- Partnerships – these can be some of the best forms of financing if you can build healthy business relationships with people who are looking for an equity stake in a thriving business.
- SBA or Bank Loan – Small Business Association and bank loans are a viable option for many boot-strap entrepreneurs. However, getting these loans requires a lot of work and often the assistance of an accountant. In many instances, an entrepreneur still has to “guarantee” the loan with personal assets of some type.
How Do We Afford Quality Employees?
It’s no secret that you can’t compete with large companies. So you need to figure out what you can offer that gives you a competitive edge. This probably won’t be in money or benefits. But it could be flexibility, culture, likability, mentoring or an opportunity to learn and grow in a specific area. Don’t forget about seasonal employees and interns.
I also recommend that you take your time in choosing employees. Don’t just hire the first person you see. Have meaningful interviews and ask great questions. Put new people on a trial basis. My colleague and Casey Neilon’s COO, Debbie Vaughan, wrote a great article about how to attract talent in today’s job market. Take a look at that article for more good ideas.
What Kind Of Insurance Do We Need?
If you have employees, you need workman’s compensation insurance. This is a legal requirement and you should not risk not having it. If you have a lot of expensive equipment in a rented or leased space, I also recommend that you consider renter’s insurance.
If you can afford it, I recommend that you get life insurance for the business owners. The business probably won’t pay for this directly, but you can increase your compensation from the business enough to personally afford it. Make sure your family is taken care of.
Again, if you can afford it, I recommend that you get health insurance. Unlike life insurance, health insurance often can be paid for through a business and it is typically considered a legitimate business expense. Don’t skimp on this because you need to be healthy and you don’t know what the future holds.
How Do We Create A Realistic Vision For The Future?
The first thing I typically say to boot-strap entrepreneurs who ask me this question is – be patient and realistic. Rome wasn’t built in a day and you probably won’t get to where you want to be with your business in a short period of time either. So I recommend that you take a long-term view.
Second, I recommend that you base your projections more on what has happened than on what you want to have happen. Entrepreneurs tend to be optimists, but you really don’t know what the future holds. It is very likely that the truest barometer of your future financial performance will be your past financial performance.
Don’t get me wrong. Some business models have inflection points. In these models, a company may reinvest profits for many years, realize small incremental improvements as they claw their way up the mountain and then – voila – they take off. But if this has never happened to anyone in your industry, I would not recommend that you build your vision for the future on that hope. Hope is not a business plan.
Instead, I recommend that you carefully and accurately document at least 24 months of operating plans – income and expenses. From there, you can make reasonable projections for the next several years based on existing data. Of course, because you are an entrepreneur, the X factor that can get you to your goals a lot faster is how hard you are willing to work. I try to never underestimate the drive and passion of boot-strap entrepreneurs.
How Do We Work Smarter And Not Just Harder?
First, I recommend that you get a business coach. Many boot-strap business models are filled with entrepreneurs who have already “been there, done that.” These people are sometimes called management consultants or coaches. If you can find a good one that you can afford, they can help cut years off your trial and error learning curve. These people can help you think about ways of doing things more efficiently.
Second, there is a lot of free or low-cost information available on the Internet. If you come across a blog or business site that you like and they offer a newsletter, sign up for it. These can put ideas in your head that you may not have considered and might even help you connect with other people who are like you so you can learn from each other.
Third, if your industry has conferences or events, I recommend that you attend these. Every business today, it seems, is seeing break-through technologies and applications that can really help improve efficiencies. A lot of times, these technologies are on display at industry conferences. You also get to meet people who might become a coach or a mentor at these events.
How Do We Avoid Burn-Out?
First, I recommend that you plan for, and actually take, a vacation. I know that probably sounds like a luxury that you’ll award yourself at some point in the future, but I think vacations and breaks are necessary. They refresh your mind and help you get ready to focus when you come back to work. If you own a retail operation and can’t get away for long periods, at least take a few days several times a year.
Second, get advice from people you trust. There are other entrepreneurs who would likely be willing to talk to you and this can really help. Burn-out is a real risk for boot-strap entrepreneurs – especially first-timers who underestimate how long it takes and how hard it is to achieve success. When you hear from other people about how long it’s taken them to get to where they are in their business, it can give you real perspective.
Third, don’t go it alone. There is an African proverb (or so I’m told) that states: if you want to go fast, go alone. If you want to go far, go with others. You need a team of people around you to support you on your journey and to help you stay the course, especially when things are challenging.
How Can I Help?
Boot-strap entrepreneurs amaze me. Now that I am a part of a small business and have seen what people go through to achieve success, I have a real appreciation for the journey. If I can help you or someone you care about, please reach out to me for a conversation.
Seth Altamirano – SENIOR ACCOUNTANT
I am a Senior Accountant at Casey Neilon. In this role I lead audit and review engagements, prepare tax returns, and find the most impactful ways to serve the ever-changing needs of our clients. I have been serving clients in this capacity since September 2017. My experiences have taught me that our work as accountants goes beyond the traditional service lines of audit and tax. It is about connecting with people and addressing their needs.