Ancillary Functions of Small Business

June 18, 2016

 

Q.  I have worked for several years as an automobile repair technician. I know this field well and I enjoy my work. I’m thinking about opening my own business. Do you have any words of caution?

A.  We often advise people not to open a bakery because you love baking cakes. If you love baking, get a job as a baker. The minute you open a bakery, you’ll discover that there is a lot more to running such a business than baking cakes. You’ll have to wait on customers, keep the books, order inventory and sweep the floors. Open a bakery because you want to run a business and you happen to have a great cake recipe. We offer the same advice about opening an automobile repair shop.

There are many functions associated with running a business. Before you quit your day job, make sure that you know how each of these functions is going to be handled. In most cases, the founder will need to be good at doing the primary work of the business. It sounds as though you fit this mold. It is important to remember that this most often includes sales and marketing. You’ll need to figure out how you will drive business to your shop. Further, you will need a plan for how to accomplish the ancillary functions (e.g., accounting, information technology, etc.).

We recommend that the first step for most entrepreneurs is to sell something. Put in place the minimum amount of infrastructure that you can get by with and focus on generating revenue. If it doesn’t violate your contract, perhaps you can take on some side jobs working out of your garage at home. This will allow you to figure out how your business will operate. If this isn’t a viable option, you may need to take the big step of launching your business to see if it will work. In this case, we advise doing it at as low a cost as possible.

Many new businesses fail because they simply cannot generate enough revenue to cover the fixed costs. Keep them as low as possible. Test the viability of your business as quickly and as inexpensively as possible. We say, “Fail fast, fail cheap.” Learn from your failure and modify your approach. Once you identify a model that generates revenue, then you can focus on building infrastructure.

The only caveat to this advice is to, “Fail fast, fail cheap, but don’t fail because you are cheap.” That is, don’t offer an inferior product or service that has little or no chance of success because you are doing it on the cheap. Spend enough to ensure that you have a chance to succeed. For example, in your case, this means make sure you have the tools to do the work properly.

While we recommend minimum infrastructure during this trial phase, there are some things you will need. For example, in many counties, you’ll need a business license. You’ll want to keep track of the revenue you generate and all of your business expenses for filing taxes. In Virginia, if you are selling a product, you’ll have to keep track of and pay sales tax. To minimize expense, you’ll want to handle as much of this as you can personally in the beginning. However, it’s wise to reach out to people who have expertise you lack. Initially, you should minimize the infrastructure you build, do as much of the work as you can yourself, and outsource those items where you lack expertise.

As you get some traction and your business grows, you will find that your capacity is exhausted. You’ll need to begin to make cost/benefit tradeoffs. For example, would the business be better off if you spent your time putting entries into QuickBooks or if you hired someone to do that work and spent your time marketing or working in the shop? By hiring an employee or outsourcing, you are in effect buying yourself more time that you can invest in other aspects of the business. The investment is a wise one when the value you create by spending your time in these aspects of the business exceeds what you have to pay to create this time for yourself.

Finally, we suggest that you have a plan for how you will pay your bills during the startup period before launching out on your own. If you plan to live off of savings, make sure you have twice as much as you think you will need. Launching a business invariably takes longer and costs more than you think.

Starting a business is a risky venture. Planning for how you will handle the ancillary things that go beyond the core of your business will improve your chances of success. Good luck!

Share on Facebook
Share on Twitter
Please reload