By Elena Fawkner
If you've left the corporate world to strike out on your own in
your own home-based business, you'll be acutely aware that your
financial success is up to you and you alone, perhaps for the first time in
your life. For obvious reasons, therefore, your home-based business is
probably run on a shoestring.
This means, of course, that you do
everything. Although you are now CEO, you are also secretary, marketing
director, receptionist and gopher. But hey, that's the way you like it,
right?! And when you're just starting out, let's face it, you don't have
much of a choice anyway.
But sooner or later, if you keep doing
everything yourself you'll necessarily curtail the growth of your business.
It will grow to a certain point but no further because you're only one
person and there are, after all, only 24 hours in a day. Now, if you're
satisfied with making a little money on the side, that's fine. But if
your business is your only source of income, you must move beyond start-up
if you are to become financially successful and avoid stunting the growth of
your business.
This article looks at the growth stages of a typical
one-person home-based business and how to gradually grow your business
without being run over in the process.
INITIAL GROWTH
=>
One-(Wo)Man Band
As already stated, when you first start out, you do
everything yourself. You're both chief cook and bottle-washer. And you
can continue like this for quite some time because, initially, you are
unlikely to be fully stretched. This is exactly what you should be doing.
This is NOT the time to go out and spend money with advertising
agencies and hiring employees. For so long as you CAN do everything yourself
and everything that needs to be done is getting done, this is the most
efficient use of your current resources.
=> Don't Overcommit
Yourself
During this stage, however, it is important to be careful not
to overcommit yourself. You are a fledgling. You must learn to fly like
a sparrow before you can soar like an eagle. So, when you first start out,
underpromise and overdeliver.
Also, don't embark on an aggressive
marketing campaign until you have the business resources to satisfy the
demand you will create. Let your advertising grow in line with the
growth of your business, the addition of employees and increased
financial capacity.
=> Pay Yourself
Be extremely careful of
your pricing during this stage also. Make sure you include a wage for
yourself in your overhead costs and add a realistic profit margin (say
15-20%). Remember, price equals costs plus profit margin. Costs include
direct, indirect and overhead costs. For a more detailed treatment on
pricing, read "Pricing Yourself to Get, and Stay In, Business" (http://www.ahbbo.com/pricing.html).
=> Profits Belong to Your Business
Plough your profit back
into your business. This is most important. This is where your funds for
expansion during the next growth phase of your business come from. NEVER
use your business's profits to pay personal expenses. This is what you
pay yourself a wage for. Your business's profit does not belong to you. It
belongs to your business. There IS a difference!
=> Avoid
Premature Expenditure
During your shoestring days, look for lower-cost
substitutes before incurring substantial expenditure. For example, don't
go out and buy a new fax machine, a new answering machine, a new
photocopier. Get one of those three in one jobs that sits on your desktop
and only costs a few hundred dollars.
Use a good accounting software
program rather than hiring an accountant and hire from your family first if
you need temporary help. Another good idea is to negotiate with family
members to take over some household chores you would normally do
yourself to free your time to work on your business. This works especially
well with pocket-money age children and teenagers.
During times of
temporary overload, hire temporary staff from a staffing agency if no family
members or members of your social circle can do the job.
=> The
Glass Ceiling
After a while, somewhere between the one year and three
year mark, you will notice that your business is beginning to stagnate.
At this point, you have stretched yourself and your resources as far as they
can go. You have hit the glass ceiling.
At this point, if you want
your business to grow further, you will have to grow it. It will not happen
as part of an evolutionary process beyond this point.
BEYOND THE
GLASS CEILING
=> Hire Permanent Employees
The time to hire
permanent employees is when you reach the point where you can't complete all
tasks alone (or with the help of family members) and/or your time is worth
more than it would cost to hire someone to complete your less complicated
tasks.
Before adding employees, carry out an inventory of the
necessary tasks required to operate your business. Once you've
identified all necessary tasks, assign primary responsibility for each task
to one person. Although one person will be assigned more than one task, make
sure no two people are assigned the same tasks.
Also, make sure at
least one other person knows how to do each task to cover yourself during
times of staff shortages, whether due to temporary absence due to illness,
or when an employee resigns and it takes you a while to find a replacement.
Finally, and most importantly, when assigning tasks, assign yourself
the tasks you do best.
=> Capital
To grow beyond the start-up
and initial growth phases, you will need capital to inject into your
business. Now this, unfortunately, is easier said than done. Banks can be
leery of entrepreneurial ventures and venture capital is not easy to
obtain. But, although obtaining borrowed capital is difficult, it is by
no means impossible. Here are the main sources of funds:
* Banks
Cultivate a good relationship with your banker. The more he or she
understands your business and knows you, the more likely it is that your
application will be approved. And this means more than just fronting up when
you need money. Keep your banker informed of all significant developments in
your business and routinely provide copies of your annual business plans.
Be prepared to demonstrate that your business is capable of
generating cashflow and think about what collateral you have available
to put up if necessary.
* Venture Capital
In addition to a solid
business plan and track record, venture capital providers want to see that
you understand your customers and how your business is a good fit with their
needs. So arm yourself with competitive intelligence and satisfied
customers as references. Also, be prepared to show you have access to
experienced management staff. These individuals need not be on your payroll
but you should expect to show that you have a depth of experience and
talent available to you at least in an advisory capacity.
* Revenue
Stream
Instead of selling equity to raise capital, consider selling part
of the revenue of the business. In other words, investors advance loan
capital and get repaid by way of a percentage of the sales of the business.
This preserves your equity in the business and is attractive to investors
because they receive an immediate cash return.
This method has the
considerable advantage of avoiding securities laws (it is a loan rather than
a sale of securities) but it is only viable for businesses with high margins
and strong sales.
* Angel Capital Electronic Network
ACE-Net
brings companies looking for capital together with angel investors. You can
find links to ACE-Net at http://www.sba.gov/ADVO .
* Direct
Public Offering
If your business has a strong relationship with its
constituents (employees, customers, vendors and community), consider
selling stock via a direct public offering. Note that with this option
you will run into serious securities laws issues which will require an
attorney. This is an *expensive* alternative. Other miscellaneous sources of
funding include 401(k) plans and provision of loan guarantees by family
members or friends.
=> Work On the Business, Not In the Business
The third and final point to note about breaking through the glass
ceiling is that you must make the mental transition from working IN the
business, to working ON the business. Until your business hit the glass
ceiling, you were effectively working in the business, much as an employee
would. In this sense, the business was your job, a place to go to work. But
beyond the glass ceiling, your business becomes an entity unto itself.
It is no longer your "job" to work at the tasks that make up the business's
operation. Instead, your role is to work "on" the business as a separate
entity, leaving the tasks to your paid employees.
Hopefully you can
see that shifting your perspective in this way is the key to the long-term
growth of your business and the difference between true autonomy and
indentured servitude.
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