What to Do With Your Profits

Get Help

Robin C. Paterson, 41, is an unusual entrepreneur. After all, how many guys do you know who have started a bank?

In 1998, Paterson and his four partners-Leon Blankstein, 44; Donald P. Johnson, 57; Robert F. Schack, 56; and Wes Schaefer, 52-pooled their money and co-founded American Business Bankin Los Angeles with $50,000, each contributing $10,000. Then they raised the rest of their start-up capital until they had accumulated about $14 million.

That doesn't seem like a hardship, but when you're opening a bank, $14 million isn't a huge amount. In their first month in business, they lost $212,000; the next month, they were another $228,000 in the hole. Paterson, senior vice president and chief credit officer, says that for the first months when they were still raising money, the five of them worked in an 8-by-10-foot office with one desk and two chairs, and nobody drew a salary.

After they opened in 1998, it took them 13 months to make their first profit of $2,365. "Once you've made that first dollar, it's no longer a dream," says Paterson. "You've become a real business. You've crossed over."

The priority for their profits was to bring in more employees. "That's still our biggest challenge, to find good people to help us continue to grow," says Paterson.

In the beginning, of course, you may hardly be able to pay yourself, let alone somebody else. Which is why employee recruitment expert Clark Waterfall recommends nepotism. "Your brothers or sisters or in-laws have some free time, and you can pay them on the cheap, and they'll work out of your basement," he says. "This can work for the very early stages of a business." But even though they're your relatives, don't hire them unless they can be professional.

Once your business starts to grow, then you can worry about finding better talent, adds Waterfall, managing director and co-founder of Boston Search Group Inc., a Boston company that recruits executives and professionals in technological fields.

"Turning over employees across the growth curve of a company is not a bad thing," explains Waterfall. "It's like clothes. You don't wear the same clothes as a teenager that you wore when you were a toddler. You have different needs [as your company grows], and very few employees have that much Spandex, or elasticity, in them."

Even with $14 million fueling them, these bank founders could only afford one teller when they really needed three, so the executives helped out when necessary. Because they only had one teller, Paterson says, their bank couldn't offer all the services you'd expect from a full-service bank.

And while they wanted to hire a full staff, they operated conservatively and didn't hire a second teller until six months had passed and business was thriving. Nine months later, they reached their magical number three. Admits Paterson, "We're in reactive mode when it comes to overhead."

The Land of Milk and Money
Today, American Business Bank manages $350 million in assets, and while Bridge Technical Solutions and Fox & Hounds aren't anywhere near that level, the entrepreneurs behind both businesses feel they're on solid ground.

Wright is careful to make sure he earns enough to treat himself, and Kershner, who routinely jets off to places such as London and Hong Kong to meet with her manufacturers, enjoys the travel that has become one of the perks of her business.

Additionally, "I've been able to give bonuses and raises to the staff, which was wonderful," says Kershner. "And we can do nicer things for the staff, like stocking the refrigerator with sodas."

In short, Kershner's business is thriving because she had a little foresight in the beginning. She was cautious with her money and tried to see what the future could be with it. Thanks to her foresight, her future looks bright.

Be Good to Yourself
You might think it's a rich man's world, but the point at which your company finally makes a profit is not the time to start living high on the hog.

"Making a profit after not making a profit for a long time-it's like a drug to the brain," says Brian Tracy, a prolific author and publice speaker on numerous business issues. "There's a natural tendency to associate spending or buying stuff with rewards-Christmas, birthdays, getting a new car. Sometimes entrepreneurs will take an expensive trip; often they'll buy a house. It's a very heady thing, to make your first profit."

Of course, that doesn't mean you can't be good to yourself-just remember to do it within reason and, even better, make sure there is a reason. James Wright, president of Bridge Technical Solutions LLC in Providence, Rhode Island, fondly recalls blowing a significant wad of cash on a big holiday dinner last December. "We went out with my partner's wife and my girlfriend," says Wright. "But it wasn't just about pampering ourselves. It sent a [positive] message to my partner's wife. Here are two guys who feel comfortable to do this and can talk positively about their business. It was important that we did that."

But going out for dinner every night or every week? That may not be such a good idea. "Now that you have won, it's important you don't lose," says Tracy. "I have a friend who is an entrepreneur. He bought a BMW, a $40,000 car, and the next month his business took a dip, and he went into a complete panic. A few months later, his business was gone. Once you put the cash in a new car, you can't get it back."

Geoff Williamsmakes a living as a full-time freelance journalist and is sometimes even profitable.

« Previous 1 2 Page 3

Geoff Williams has written for numerous publications, including Entrepreneur, Consumer Reports, LIFE and Entertainment Weekly. He also is the author of Living Well with Bad Credit.

Loading the player ...

Mark Cuban's 12 Rules for Startups

Ads by Google

Share Your Thoughts

Connect with Entrepreneur

Most Shared Stories