Ready to Grow Your Business?
Your partner wants to move out of your home office, but you don't think you're financially ready. Time to step back and look at the big picture.
Q: My partner and I recentlyestablished a homebased company after leaving our full-timepositions. We've received a fair amount of sales in a shorttime, and now my partner wants to get a "real office"with a receptionist. I agree that one of our goals should be togrow the business, but I think we should assess the growth and cashflow, look at financials in 6 to 12 months and then determine ifit's prudent to start allocating money to overhead. Consideringthat we still need to buy at least one van and hire field help, theexpense of an office space would be foolish, in my opinion. This isbecoming a real bone of contention between us. Any advice?
A: Who is thebig-cheese-buck-stops-here boss of the company? A businessisn'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 yourcompany?
Both sides of this argument sound reasonable to me. You have avery good point about stockpiling cash until you feel comfortableincreasing overhead expenses. I can also see your partner'spoint. There are downsides to the home office setup. And having areceptionist would be nice! A business should suit the needs andwants of the owners. No one's who's wrong here-you havedifferent needs and wants, that's all. So who wins?
I think it's time for a strategic planning retreat. Take astep back, leave the business for a day or two, and work out theanswers 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 yourpersonal goals?
- How can you get there from here?
- Who's the biggest cheese? Who makes the call when you havedifferent opinions? Who does what, when and how at thecompany?
Get the idea? The answers to these questions need to be writtendown. They're the basis of your business plan and operationsmanual.
Another thing: Every company has overhead. Owner's salaryand benefits are overhead items. (Beware the tax implications ofyour distributions. Are you working with a good accountant? A sharpCPA and/or bookkeeper is essential to your success.)
If you want to make more money, or if you choose to lease officespace or buy a building, your overhead costs will go up. That'sfine-as long as you raise your prices to cover those costs. Believeme, if your company depends on low prices to make sales, youwon't do well in the long run. If you and your partner are thebest at what you do, feel free to charge enough to make all yourdreams come true.
Visit my Web site, www.barebonesbiz.com. Click on the"Numbers Cruncher" button and find the demo. Check itout. Numbers Cruncher is a cool spreadsheet program that lets youplay with different budgeting scenarios. Play the "WhatIf?" game. Plug in the anticipated lease payment and see whatit does to your selling price. Plug in a huge salary foryourself and see what you would need to charge to make it happen.This tool can add data and reason to your discussion of what youshould and shouldn't do with the company.
Your situation is not unusual, and certainly you can get pastthese sticky points and move to greater and greater successes ifyou get it al lout in the open now and agree on these majorpoints.
Author Ellen Rohr nearly starved in her family's smallcontracting business-until she learned how to manage money."Do what you love, certainly," she says, "but themoney won't just take care of itself." Ellen's priceycollege education didn't prepare her for real-world business."Financial business basics aren't that difficult...butwhere do you learn them? Unfortunately, business literacy isn'ttaught in school. I teach the basics and take the mystery out ofmaking money." Ellen's mission as an author, columnist andseminar leader is to help people make a living doing what theylove.
The opinions expressed in this column arethose of the author, not of Entrepreneur.com. All answers areintended to be general in nature, without regard to specificgeographical areas or circumstances, and should only be relied uponafter consulting an appropriate expert, such as an attorney oraccountant.