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Business success is dependent on a solid financial foundation & success looks different to everyone & there is a lack of equity of access to resources and information for small business owners and independent contractors & there is a societal narrative making us believe “balance” is our ultimate goal & … There are so many “&”s that impact being your own boss. Let’s have some frank discussions on the basics of business with a holistic focus on everything that helps business owners define and find success.
Molly Beyer: Hello, hello, I am Molly Beyer, host of The Ambiguous &: Business Basics and Beyond, a podcast where we have frank discussions on the basics of business with a holistic focus on everything that helps business owners define and find success. There are so many ands that impact being your own boss. Join us as we explore all these ands and more. Like, subscribe or follow wherever you get your podcasts and let's explore these ambiguous ands.
Molly Beyer: Hello and welcome to The Ambiguous &: Business Basics and Beyond. I'm your host, Molly Beyer, and I'm here to lead you through frank and holistic conversations on the basics of business. Last episode, we took a journey through a foreign land. This episode, we're going to climb a mountain. But not just any mountain. We are going to climb a money mountain. Now, I myself am not a mountain climber. My asthma would never allow me to reach those heights. Though I do love a good hike. But I do have a couple of mountain climbers in my world and I love hearing about it. The thing that is amazing to me about mountain climbing is the preparation, skill and mindset involved.
Molly Beyer: Saying one day I want to climb a mountain is amazing, but you cannot just set out and climb the mountain. Starting in building a successful business is much the same. You can wake up one day and say, I want to start a business and believe me, just like mountain climbing, that is a great goal. But there are steps you need to take to make sure that you start successfully. Or in the case of mountain climbing, to be sure you don't actually die trying. Though the words we use in business are different from those in mountain climbing, the steps we take are essentially the same. Step one, build up the basics. Step two, pick a target. Step three, get some training. Step four, build a solid plan. Step five, outfit your operation. Step six, prepare for complications. Step seven, plan, plan, plan. And step eight, build slowly.
Molly Beyer: So why is all of this preparation important for a business? Well, because the reality is that most businesses will fail. Statistically, about 20% of all businesses started will fail within their first year. By three years, an additional 54% will fail, and by year five, only about 20% total will remain. Of those that do fail, 82% do so because of financial issues. But even established businesses can stagnate for many of the same reasons. So whether you're just starting out or you've been in business for years, not knowing and understanding your business financials will be the difference between owning a business and being a successful business owner. And unfortunately, more often than not, the difference between owning a business and losing a business.
Molly Beyer: So how can we best prepare to climb our money mountain and actually make it to the top to be in that 20% that gets to reach the peak? Well, let's take a good look at each of the steps. Our step one was build up the basics. Now in mountain climbing this means getting physically prepared, building strength and endurance, and practicing with heavy packs and safer, more controlled climbs. In business, this means spending time asking and answering yourself questions about the what's, whys, and hows of your potential business venture. These are many of the questions we talked through in the last episode on business plans as a roadmap to success, but here we need to go deeper, delving into the financial aspects of the business plan as well.
Molly Beyer: Step two, pick a target. In mountain climbing, this means deciding what type of climb you want, including terrain and height. In business, this means deciding on a specific product, service or offering and what market to introduce it to. Here is your first opportunity to look at the current market as well, both for your offering and for spending in general. Is your offering something that people need and are they willing and able to pay for it now?
Molly Beyer: Step three, get some training. In mountain climbing this may mean taking a course on a specific terrain, or just general skills training in the field with an experienced instructor. In business, this may mean getting a degree or certification in your desired offering, taking a general course or 1 to 1 mentorship either in your field or from an organization like the Small Business Administration, or even getting a coach or consultant to guide and assist. This is also the time to start learning the financial jargon of business, so you're better prepared to write your business plan and answer the questions that will come from investors and financiers.
Molly Beyer: Step four, build a solid plan. In mountain climbing, this means becoming a master of maps and all the tools needed to plot, navigate, triangulate, and pace. In other words, you need to know where you're going, the landmarks along the way, how fast you move on the terrain, and how to get back when you get lost. In business, this means bringing together all of the pieces of your business plan in whatever form works best for you to make sure you know your goal, the landmarks on the way, and the financial resources required.
Molly Beyer: Step five, outfit your operation. In mountain climbing, this means most literally the clothes you will need for the climates you'll be traversing, as well as the gear you'll need to camp and eat along the way. A general rule I've heard is that you lay out everything you think you'll need, and then you remove items until you have the essentials, but your pack is not too heavy. In business, this is much the same. Getting the gear that will get your business running without making the burden too fiscally heavy. Make a list of everything you'll need to run the business: computers, phones, supplies, employees, inventory, everything. And then scale the list back to what you absolutely need to start. Knowing the other items will come when there are resources available.
Molly Beyer: Step six, prepare for complications. In mountain climbing, this means making sure you bring oxygen if you'll be reaching extreme altitude, having a backup route if yours is blocked, keeping first aid supplies on hand in case of emergency, and knowing what your party will do in the event of a serious injury or death. In business, this means making sure you have the cash on hand to give you the time to make changes when needed. We often hear that most Americans are living paycheck to paycheck and that many do not have the savings to get by even a month without income. Well, this is true for many businesses as well. We saw this in action with the COVID pandemic and its impact on both large and small businesses. Many businesses did not have the cash available to hold operations long enough to pivot and remain fiscally active in the new environment. We even lost many large, long-standing businesses during COVID. These businesses were operating primarily on receivables or the money owed to them or expected from sales. They literally did not have enough liquidity, which is cash and assets available to sell for cash, to be able to shift their focus. Do not get caught in this trap.
Molly Beyer: Step seven, plan, plan, plan. In mountain climbing, this means planning climbs in well-travelled areas, taking pace into account when plotting out days on the trail, and knowing required permits or licenses for the area, especially when climbing abroad in areas you do not speak the language. In business, this is writing and regularly revising your business plan, making sure you know all of the licensing and setup requirements for the business in your area, and knowing your tax responsibilities and the taxing authorities, especially if you'll be operating virtually or crossing state or international borders. It is also important to know and understand financial reports even before starting your business. When creating a business plan for financing or investors, you will need to have pro forma financials, which is basically projecting future income and expenses based on a set of presumptions. Once the business is open, you will use current financial reports to review how the business is running, to compare actual numbers to projections and budgets, and to make business decisions. The three reports all businesses use or should use are the income statement, which is also known as the profit and loss, or P and L, the balance sheet, and the statement of cash flows. These reports will take your past actions and turn them into numbers that help you better run the business. We will spend some time in depth on each of these reports in future episodes.
Molly Beyer: Step eight, build slowly. In mountain climbing, it is important to build your skills slowly so you can eventually reach the peak of your dreams. If Everest was your first climb, you would likely not survive to have another. In business, this is no less important. Pushing for quick growth often results in depleted cash flows and can cost you the business. Start modest. Build your skill, your client base, and your reputation. Know your Everest, but get there slowly so you can enjoy the view from the top and make it back safely. Now this is just the start to getting to our goal peak. One of the things that I am most passionate about is increasing equity of access to resources and information that can help business owners succeed. There is a great amount of information available online to help people succeed, but getting it all together in one place and making sure it is both high quality and clearly understandable to all, that's another story. This is why I decided to gather the information for a high-quality resource that is understandable to people of varying backgrounds, education levels, and experience in business. I spent a year compiling the information, running it by other financial services professionals, and testing its understandability.
Molly Beyer: This resource is available from the link in the episode description. Please, please, please use this and share it with anyone it can help. And remember, this document is a bare minimum of what you should know about business financials when you own or run a business, and this is important. The foundation of business is what determines success, and as business owners, we try to, or often have to, bootstrap in the beginning of our business. Because of this, so many people are not able to hire professionals to get them started. And yes, I am an accountant and I own a bookkeeping business. But when so many businesses fail due to financial issues, I think I'm safe in saying that one of the first tasks you need to outsource to a trusted professional is your bookkeeping. Financial services professionals are the Sherpas of the money mountain. Do not attempt to scale great heights without them. And quickly, before we go, here are a few more basics to add to your pack before setting off on your journey.
Molly Beyer: Separate personal and business finances. Get yourself a business bank account and use it. You also need to have some form of record keeping, even if it's spreadsheets in a shoebox full of receipts to start. You need some sort of bookkeeping. Pay your estimated taxes. Know what you need to pay and keep up with it. Penalties and interest deplete your cash flows. Avoid them at all costs. Have a budget and stick to it. Protect your credit, personal and business. Run both your personal and your business as a business and pay your bills on time. Your credit score may be the difference between success and failure someday. Have a savings reserve. Yes, this is a tall order, but save as much as you can. This is how you weather economic downturns and other pitfalls that come along in business. Track all inventory correctly. Remember, inventory is cash. Treat it that way. Make sure you know what expenses are deductible and which aren't or aren't fully. This is why it is important to have a solid tax professional to really let them help guide you in this area. And finally, make sure you're planning for retirement. Investing in your business is investing in your future. Make sure this investment is protected. And please, please, please consult an independent financial advisor to help you through this.
Molly Beyer: Thanks again for hanging out with us today. We would really love to hear your feedback on today's episode as well as requests for future content. Drop a comment or suggestion and join us next time for more frank and holistic conversations on the basics of business. Please also like, subscribe or follow so you never miss an episode. Until next time I am Molly Beyer and this has been The Ambiguous &: Business Basics and Beyond. Have a wonderful day!