Why does one go into business? Consider these four classifications of Owners; the inventor, the salesman, the entrepreneur and next generation. Where does your client fall? There is almost no one who is a trained businessman from the beginning. Some may go to business school and desire to run a Fortune 500 Company, but most are everyday people that see opportunity and a niche or see a product that they think makes sense that they would be able to market. However, few have been taught the business of managing a business.
There are over 6 million small (under 500 employees) businesses in the U.S. How do they become successful and how do they manage success? Some will be self-taught (to a point), others will hire more skilled employees, and others will seek outside assistance. Which of these paths they will take may depend on which type of owner they are.
INVENTOR – He has developed a product or technique, and now he is not very concerned about how it gets marketed or how to price it or finally get it to the user? He is even less interested in billing and collecting his money. He just created the ultimate widget, and that is all his only care. He may want to invent enhancements, another widget or even retire. However, not much thought goes into putting a company in place to do what is necessary to get this product to the ultimate consumer. He might even sell the invention so as not to deal with the business aspect of it.
SALESMAN – He can sell almost anything; he is not really interested in managing people. The back office tasks of billing and collecting the money are all left to someone else. The challenge is in the sale of the product, where he might undercut its price just to get the sale. He likes his independent schedule and does not want to be held accountable for his time or efforts. He almost always needs someone to run the business or a strong “right-hand man/woman.” He will be looking for the next sale and not be concerned with the day to day operations. Rarely will he be in the office. The business is entirely dependent upon him for bringing in new business. Without the owner/salesman, the company would cease to exist because he is the only sales stream.
ENTREPRENEUR – This person is always looking for the new challenge; he does not want to be involved in the business he founded. He would prefer to establish a new venture, get it started and then move on again. He is probably not interested in day-to-day operations once the company is running. He may create messes and then move on to the next newer business, leaving others to clean up after him.
NEXT GENERATION – This group is the family or friends that inherit or buy an ongoing business. The business has been “successful,” and nobody wants to change that. Even though change is natural and inevitable; yet they keep doing things the same way it has always been done. Pricing from the 1990’s or sales and marketing methods that have not changed with technology. Alternatively, “let’s add 35% for overhead and profit because that is what we have always done.” Not knowing or taking the time to calculate what the exact number needs to be.
The object here is to point out a pattern in each of these types of ownership. The fact that not one owner wants to manage the business that he/she created, nor is the next generation going to change their methods of doing business. Each has a different goal in mind for his/her company. Keep in mind that 50% of all new businesses fail within five years. Is this surprising when you look at the type of “owners” who go into business?
A large number of owners may rely on advice from their accountant or lawyer to help run their business.
An accountant’s goal is to reduce your taxes; very few have run or are trained to manage a business. How the Chart of Accounts is organized can tell you how much credence is given to the actual running of the company. There are very few Charts of Account’s that are set up for managerial accounting. There is little thought to distinguish between fixed expenses and variable expenses. The accounts are not designed to provide adequate numbers to help manage a business. One line for all of the revenue streams, one line for the cost of goods is not sufficient for running a business. Most discussions are centered on tax avoidance and not how to efficiently monitor the numbers to improve the business. If the COA is not set-up correctly and you are using the accountant to provide the financials, then you are inevitably a month or two behind in getting this information. This system does not assist in the managing of the company because you are always looking backward; not forward.
The lawyer for the company is adequate for incorporation, asset protection, and other legal advice but is rarely trained actually to manage a business.
Most accountants and lawyers have enough trouble running their own business let alone that of their clients.
SUMMARY Yes, there are a small number of owners who do an excellent job of surrounding themselves with competent people who perform what they will not or cannot do. The vast majority, however, do not understand the business of running a business and those that do have not employed competent people to move to the next level.
The previous discussion is meant to point out just how many small businesses might benefit from a relationship with a Small Business Consultant. While there are a plethora of small business owners out there, they are not interested in actually “running the business” they have created. Most do not have the training, and many do not have an interest in running the business. Their forte lies elsewhere in the business. Consultants are perfectly equipped to determine the type of owner for each project and help them build a team to manage the company for the future.
At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information: