Small-Business Myths Busted
The truth as you know it about starting a business may really be a
lie. Let us help you sort the myths from the realities.
By Patricia Simone as featured on
Entrepreneur.com
So many aspiring entrepreneurs dream of the numerous rewards
that await them when they finally break free of the shackles of the rat race
and become their own boss. But many see only the gold at the end of the
rainbow--and go into it with misconceptions about what's it's really
like to own their own business. They think funding sources are just a phone
call away, that they'll have time for weekly golf games and will be rolling in
the dough faster than you can say "Ch-Ching."
To help you sort out the myths from the reality, we've put
together a list of the top 10 "small-business myths." We've included the most
common, inaccurate information you may have encountered, along with the real
skinny on starting your own venture, so you can make smart, informed decisions
for your business.
We know you can navigate these obstacles because we've seen
thousands of entrepreneurs successfully work through these challenges and
create thriving businesses. These pointers will help you overcome some of the
most critical hurdles every business owner encounters, saving you time and
aggravation, so you, too, can come out on top.
Myth No. 1: "The government has grants for startups."
The Real Story: Nothing could be further from the truth! The federal
government does not have any programs that lend money directly to any
business. According to Mark Johnson, a business development coordinator for
the Kentucky Cabinet for Economic Development, a state agency involved in job
creation and business development, some states may have special grant programs
in place that may be a resource for people with disabilities, veterans, or
minorities. These special funding programs have very specific requirements
that must be met in order to be eligible for consideration.
Be cautious about surfing the web for funding information:
There are a lot of companies out there that claim to be able to assist you in
getting money from the government. You may want to be skeptical about any
extravagant promises you hear--odds are, if they sound too good to be true,
they probably are, so stay away from them.
Although each state and county approaches economic development
differently, one of the best places to get reliable help in any part of the
country is an Economic Development Corp. (EDC) office in your area. The
office, which may oversee either local, regional or statewide economic
development opportunities, can offer information and resources that'll help
both startup and existing businesses.
According to Steven Porath, director of economic development
in the Rockland County Economic Development Corp. in New York, "There isn't
one cookie-cutter version of the setup for economic development offices,
though our objectives are pretty much the same: to help foster growth and
success in the business sector in our respective counties. Your local office
is a great place to start, because we act as facilitators, helping to direct
people to the right resources for their particular business."
Not sure where your local EDC office is? Just type in your
state name and "Economic Development" in Google, Yahoo! or one of the other
search engines to find the right source for your area. The best part: These
centers provide scads of free services for you to take advantage of.
Find out more about
loan and grant programs for minorities.
Myth No. 2: "The SBA loans money directly to
small businesses."
The Real Story: The SBA does not lend money to businesses.
As an independent agency of the executive branch of the federal government,
the SBA is the guarantor of three different loan programs that
directly benefit small-business owners. They are the 7(a) loan program, the
504 loan program and the microloan, or 7(m) loan program.
The
7(a) loan program is the most flexible lending program, allowing qualified
small businesses to obtain financing when they may have been turned down
through traditional channels.
The
504 loan program helps small businesses looking for fixed-rate, long-term
financing for machinery, real estate or equipment needed for expansion or
modernization.
The
microloan, or 7(m) program, is structured for small business and
not-for-profit child-care centers, providing short-term financing for working
capital and the purchase of inventory, supplies, furniture, fixtures,
machinery and equipment.
The SBA helps facilitate financing through a network of
lending partners, including local banks, community development organizations
(comprised of private, nonprofit corporations set up to contribute to the
economic development of their communities or regions) and microlending
institutions. Most of these organizations are also a useful resource for any
business owner and may offer online information on starting, financing and
managing your business, and sponsored educational programs at local colleges.
Learn what
other services the SBA has to offer.
Myth No. 3: "Venture capitalists loan money to startups."
The Real Story: A great business idea is not enough to entice venture
funding. And while the dotcom era had its share of unusual partnerships,
formed on the basis of an innovative concept scribbled on a napkin, the basic
rule of thumb is that a company has to show a great track record, doing
business for at least three years with the promise of robust future growth.
More important, venture capitalists are interested in companies that can show
a detailed strategy in their business plans, with strong growth potential and
management teams, delivering a product or service that has either a regional
or national client base. So unless you have a Rockefeller in your back pocket,
your startup will have to seek out alternate funding sources.
Find out
what VC investors are looking for and what your chances of getting VC
funding really are.
Myth No. 4: "I'll have more time to do what I want."
The Real Story: As I sit in my office at 8:40 at night, all I can say
to this is "Ha!" As an entrepreneur the third time around (first in 1988 with
a retail store that lasted for 7 years, then in 2001 as a
marketing consultant, and now as a business mentor, writer and speaker), I
can say without hesitation that time is the one thing you will sorely lack!
While one of the major reasons I took my first entrepreneurial
leap was to have more time with my three toddlers, I quickly discovered that a
new business demands so much more than a nine-to-five mentality. Yes, you may
get to take your kids to the orthodontist and after-school activities, but in
order to be successful, you have to embrace the concept that being an
entrepreneur is a lifestyle, not a job. Every new (and not so new) business
owner I've ever spoken with has had the same experience. So prepare yourself
for the long haul for immense demands on your time.
Want more time in your busy day? These
25 tips for simplifying your business will help you take control of your
tasks so you have time to do what you want.
Myth No. 5: "I'll be able to write everything off."
The Real Story: Absolutely not--unless you have a hankering to get
audited. Personal expenses should not be umbrella-ed under your company, and
the business expenses you do incur should be clearly connected to the business
you're running. According to Philip C. Roventini, a New York City-based CPA
with more than 25 years of experience working with small-business owners, you
can easily identify a real business expense vs. what isn't by asking yourself
this question: "Is this an expense I would incur if I were not in business?"
Typical real expenses can include your computer and any
business operating and account management software, rent, employee salaries,
money paid to independent contractors, advertising costs, and your business
phone bills. You may even be able to deduct 100 percent of your car payments,
as well as gas and repairs, depending on the percentage of car use that's
dedicated to business-related work.
Find out what you can--and can't--write off when it comes to
business taxes with a visit to
our
Tax Center.
Myth No 6: "I can pay myself whatever I want."
The Real Story: Think again. If you take all the money coming in--or
too large a portion of it--what will you have left to pay your expenses?
Here's another point: It may not be legal. "There's something in the IRS code
that talks about unreasonable compensation," says Roventini, although the more
typical scenario is that some new business owners may not truly understand
just how much they need to plow back into their company for marketing,
operations and other expenses in order to sustain their business. "Cash flow
is key," says Roventini, who says that business owners should be prepared not
to take any money out of their business for one to two years.
Not sure just how much you should pay yourself? Find out just
what you have to take into consideration when
setting your salary.
Myth No. 7: "If I create a website, I'll get traffic
(or the more popular 'If I build it, they will come.')"
The Real Story: For all of you who firmly believe this, the bottom
line is this: Web traffic is based on a number of factors, all of which must
be in place in order for the various search engines to find your site, and to
attract the kind of customers you want to reach. According to Larry Bailin,
CEO of Single Throw, an internet marketing company based in Wall, New Jersey,
it's not about what you think will work, it's about what your customers are
looking for.
The best course of action? Work with professionals, people who
are informed about the latest developments in web design, web copywriting and
SEO (search engine optimization). You'll also need to research the right
keywords and put good, meaningful content on each page. According to Bailin,
the search engines like accurate and distinctive copy that articulates what
your business offers in a way that makes sense to the people you want to do
business with.
Your site should also have a professional visual design and
easy navigation options, including concise menu choices. Remember: You want
your visitors to linger, so don't frustrate them with a confusing design.
Bailin says you have just five to seven seconds to make a good impression on a
site visitor; some studies say you have even less than that.
When it comes to content on your site, don't confuse people
with lots of flowery language: Get to the point, be compelling and use words
that define your products or services in the language (keywords) that your
customers and prospects would use. For instance, if you owned a floral design
shop, you'd want to make sure your web content included specifics about the
top products you produce, such as "unique floral arrangements," and "beautiful
wedding and special occasion centerpieces."
In addition to relevant content that's keyword-rich, another
way to boost site traffic is link swapping. Link swapping is done most
successfully between other, related businesses that would be willing to list
your web address on their website, in exchange for you listing their web
address on yours. For the floral designer, great link-swapping businesses
might include wedding planners, catering services, limousine companies,
wedding stationary shops and musicians or DJs that play at weddings.
Learn more about just how to make your website or online
business a success with tips from
our e-Business channel.
Myth No. 8: "I should be profitable after six months,
because I'm an expert at what I do."
The Real Story: It's a fact that even if you're a pro at what you do,
most new business owners don't see a profit for two to three years. When
you're working for yourself, some of the things you start out thinking you'll
do fall by the wayside. It also takes time to develop your unique brand, your
marketing materials, and the right plan to generate sales. All too many new
business owners don't have a sensible business development plan in place for
how they'll generate sales. Realistically, it takes many years--and lots of
reinvestment into the company--before most new businesses are on steady
ground.
Get the skinny on analyzing your business finances and
budgeting tactics in
our Money Management section.
Myth No. 9: "I don't need a marketing plan or
marketing materials. This product/service sells itself."
The Real Story: Even if you think your product is the best thing
since sliced bread, if you don't have a marketing plan or budget, you will
fail. Really. One of the reasons why my retail venture had to close was due to
my lack of planning and a budget set aside for marketing. Stephanie Chandler,
a Sacramento, California-based entrepreneur and the author of The Business
Startup Check List & Planning Guide , agrees. "Marketing is an investment
in your business," says Chandler. "If you're doing it right, it pays itself
back and then some." In order to get the process started for her own business,
Chandler says she hired a professional to design her logo. Taking cues from
Nike and other well-established brands, she then developed a basic branding
strategy and campaign to get her company's name out to the public over and
over again in order to build recognition of her firm.
Need help creating your marketing plan? Our
guide to writing a marketing plan offers step-by-step information to help
you do it right.
Myth No. 10: "If I'm not getting funding, I don't need
a business plan."
The Real Story: A business plan is the absolute first thing you need
to get cracking on. Why? Because it gives you perspective and uncovers things
you didn't even know you needed to know, which in turn helps you come up with
solutions to potential problems. Chandler, who is also the founder of
BusinessInfoGuide.com, wrote a 42-page business plan for her first
(successful) venture, a bookstore. "My plan forced me to do a lot of
research," Chandler says. "I contacted other bookstore owners all over the
country with questions. I evaluated how much I had to sell on a daily and
weekly basis." Chandler also had a
backup plan for funding. And since no one has a crystal ball, she
advocates having a backup plan to your backup plan. Because of all her
efforts, Chandler knew what she was getting herself into and made a successful
transition from being a Silicone Valley executive to bookstore owner.
Our
Business Plan How-To Guide offers more details on crafting a plan for your
business.
The bottom line? If you do your homework, work with the right
experts, craft realistic business and marketing plans, fund your venture
adequately and make the necessary provisions to roll with the punches that
will inevitably hit you, you'll have a much better chance at succeeding as an
entrepreneur.
So what are you waiting for? Now that you know the difference
between fact and fiction, you're ready to start your business and keep it
moving forward on the right track!
Copyright 2007 Single Throw Inc.