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Q: My partner and I recently established a homebased company after leaving our full-time positions. We've received a fair amount of sales in a short time, and now my partner wants to get a "real office" with a receptionist. I agree that one of our goals should be to grow the business, but I think we should assess the growth and cash flow, look at financials in 6 to 12 months and then determine if it's prudent to start allocating money to overhead. Considering that we still need to buy at least one van and hire field help, the expense of an office space would be foolish, in my opinion. This is becoming a real bone of contention between us. Any advice?
A: Who is the big-cheese-buck-stops-here boss of the company? A business isn't a democracy. I'm not a big fan of 50-50 partnerships (or even worse, 25-25-25-25 partnerships), because at some point, one person must make the call. Who's that one person in your company?
Both sides of this argument sound reasonable to me. You have a very good point about stockpiling cash until you feel comfortable increasing overhead expenses. I can also see your partner's point. There are downsides to the home office setup. And having a receptionist would be nice! A business should suit the needs and wants of the owners. No one's who's wrong here-you have different needs and wants, that's all. So who wins?
I think it's time for a strategic planning retreat. Take a step back, leave the business for a day or two, and work out the answers to these questions:
- How much do you want to make?
- How much do you want to work? Where and when?
- How do you define success? How can the business serve your personal goals?
- How can you get there from here?
- Who's the biggest cheese? Who makes the call when you have different opinions? Who does what, when and how at the company?
Get the idea? The answers to these questions need to be written down. They're the basis of your business plan and operations manual.
Another thing: Every company has overhead. Owner's salary and benefits are overhead items. (Beware the tax implications of your distributions. Are you working with a good accountant? A sharp CPA and/or bookkeeper is essential to your success.)
If you want to make more money, or if you choose to lease office space or buy a building, your overhead costs will go up. That's fine-as long as you raise your prices to cover those costs. Believe me, if your company depends on low prices to make sales, you won't do well in the long run. If you and your partner are the best at what you do, feel free to charge enough to make all your dreams come true.
Visit my Web site, www.barebonesbiz.com. Click on the "Numbers Cruncher" button and find the demo. Check it out. Numbers Cruncher is a cool spreadsheet program that lets you play with different budgeting scenarios. Play the "What If?" game. Plug in the anticipated lease payment and see what it does to your selling price. Plug in a huge salary for yourself and see what you would need to charge to make it happen. This tool can add data and reason to your discussion of what you should and shouldn't do with the company.
Your situation is not unusual, and certainly you can get past these sticky points and move to greater and greater successes if you get it al lout in the open now and agree on these major points.
Author Ellen Rohr nearly starved in her family's small contracting business-until she learned how to manage money. "Do what you love, certainly," she says, "but the money won't just take care of itself." Ellen's pricey college education didn't prepare her for real-world business. "Financial business basics aren't that difficult...but where do you learn them? Unfortunately, business literacy isn't taught in school. I teach the basics and take the mystery out of making money." Ellen's mission as an author, columnist and seminar leader is to help people make a living doing what they love.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.