ComplianceLegalFinanceTax & AccountingOctober 07, 2020

Do you have the right stuff to run a small business?

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Not everyone is equipped to own a small business or handle the impact on one's personal life. You'll need to understand the essential qualities for owners, and assess how your strengths and weaknesses match up.

If asked whether they had the "right stuff" to run a small business, most people who are interested in starting a new business would answer with a resounding "yes." But the purpose of this section is not to arrive at a yes or a no answer. Instead, it's designed to help you evaluate your strengths and weaknesses so that you'll be in a better position to make certain decisions that you'll have to make before you start a new small business.

There are two distinctly different roles you'll play while preparing to open and run your own small business. Each requires specific skills. In one role, you're the person who will be responsible for providing products or services to your customers. This is true whether you have employees or not. In the other role, you also have to deal with all the activities that relate to running your business. You need to be able to handle both in order to succeed.

Since every business is unique (or should be), the specific skill set needed to provide products or services will vary. Do your best to gauge the scope of activities that make up the business. Be particularly careful not to overlook the less-enjoyable aspects of the business. And every business has a few. Regardless of your desire to go into business for yourself, if you lack needed skills, it's unlikely you'll succeed unless you find a way to compensate.

For example, should you take on partners? Should you hire an accountant or a lawyer? Should you hire a store manager (if you're opening a retail business)? Should you work from home? Your answer to these questions and many others will depend in large part upon which skills you have and which skills you lack.

Essential qualities for owners

You can still be successful even if you don't possess every skill needed to run a small business. There are, however, certain qualities that you should possess if you're to be successful:

  • Willingness to sacrifice. You must be willing to accept the fact that, as a small business owner, you are the last one to be paid. Your bank, your vendors, and your employees are all in line ahead of you. You must also be willing to sacrifice much of what once was your free time. If you like working set hours, knowing how much you'll make, and taking three weeks of vacation every year, don't go into business for yourself.
  • Strong interpersonal skills. If you thought that getting along with your boss was tough, wait until you have to deal with suppliers, customers, employees, lawyers, accountants, government officials, and everybody in between. Successful owners are able to work with all personality types, and they're able to find out from their customers what they like and don't like.
  • Strong leadership skills. Successful owners understand that others are looking to them to be led to the promised land. Others will be looking to you for answers, and if you're not ready for that responsibility, you probably shouldn't own your own business.
  • Strong organizational skills. Successful owners are able to keep track of everything that's going on in their business and to set priorities and get things done. They know that if they lose track of what's going on, they're sunk.
  • Intelligence. We're not talking about the ability to score well on standardized tests. We're talking more about street smarts and common sense. Successful owners are able to anticipate problems before they arise and to take preemptive steps to avoid them. They also know how to solve a crisis after it occurs.
  • Management ability. Small business is all about managing relationships--with your customers or clients, your employees, your suppliers, your accountant, your lawyer, your banker, and with your family. If you don't think you can effectively manage those relationships, you shouldn't start a new business.
  • Business experience. Without some solid business experience, you're probably not going to be able to borrow any money. Your banker will want to know about your experience, not just in business, but in the same field as the business you're hoping to start. If you lack the experience, go get it however you can: volunteer at an existing business or try to get a part-time or weekend job in the field.
  • Optimism. How will you react when business isn't going as well as your expected? A pessimist may fold the tent, but an optimist who believes in the business will keep going. Successful owners are optimists who are able to weather the rough spots.

Although the qualities listed above are important to a small business's success, particularly to a new one, not every single owner of every single successful business has had every single one of the desired qualities. This suggests that there's hope for those who don't possess every quality. Maybe one of these categories applies to you:

  • The unique idea. If you've built a better mousetrap, they'll beat a path to your door, even if you're a poorly organized pessimistic misanthrope.
  • The genius. If you possess the gift of greatness, they'll not only overlook your weaknesses, they'll revel in them.
  • Blind luck. The Small Business Hall of Fame contains more than a few stories of people who backed into success because of their incredibly good timing.

Knowing your ownership strengths and weaknesses

Assessing your strengths

Successful small business owners know their own strengths and weaknesses. They build their businesses around their strengths and they compensate for their weaknesses. If you're to succeed, you'll have to be able to identify what you do well and what you don't do so well.

As you evaluate yourself, be honest. You'll only hurt yourself if you're not. Also, don't panic if you discover that you have weaknesses. Every small business owner has them. The key to success is not so much in having every skill (although that would help) as it is in finding ways to compensate for the weaknesses. In effect, you are making a list of what you like to do and what you don't like to do. Generally, we like doing things we're good at and we don't like doing things we're not good at. It's a simple approach, but it should help you start to focus.

Tools to use

In the Business Tools area is a checklist for determining your strengths and weaknesses. It'll help you rate yourself and will give you some feedback about whether you're ready to start your own business.

Compensating for weaknesses

At this point, you should have looked at your own strengths and weaknesses and judged for yourself whether you're ready to start a small business. You should also have compared those strengths and weaknesses with the traits you'll need to have if you're to be successful. The next step is to figure out what to do if you don't yet possess all of those traits.

If you discover that you don't have all of the traits you need to succeed, don't despair. There are options.

Hiring someone to handle tasks you may not be good at. Refer back to the list of items you don't like to do. Ask yourself if you can pay someone else to perform them. For example, if you don't like to sell, you can hire a salesman, or if you don't like to do accounting work, you can hire an accountant.

Down the road, as you get further along in setting up your new business, you may determine that the convenience of paying someone else to do the work is outweighed by the costs. But for now, all you have to do is identify whether someone else could do the work for you.

Finding a good partner. Now look again at the list of items you don't like to do. If your list includes items that you can't hire someone else to do, the solution is not as easy. Your best bet may be to partner up with someone whose skill set complements yours. For example, a person who likes working with people but not with numbers and forms may be a good match for someone who likes working with numbers but not with people.

Partnerships can present difficulties. Many people partner up with people they know best, such as friends and family members. Be aware that partnering with those you know best doesn't always work. Some marriages and friendships have been ruined by business partnerships, while others have been enriched by them. Finding a partner through others means, such as a business association, is even more tenuous. The best advice is to be careful. Make sure that you're a good match before you go into business together.

Learning new skills. It might be necessary for you to develop the traits and skills you lack. There are at least three ways to do this:

  • Trial and error. In other words, you'll develop the skills over time by learning from your mistakes. The downside to this approach is that most small businesses won't give you much time or allow you to make many mistakes. If you benefit from trial and error, it'll usually be with the third or fourth new business you start.
  • Classes at a local business school. While classes may offer a wealth of valuable information, they are usually expensive, they often take a long time to complete, and they normally don't offer much in terms of real-world experience.
  • Small business incubators. This may be your most effective option. Incubators are programs that provide you with hands-on advice, as well as office space and access to office equipment and supplies. They're usually sponsored by federal or local government, but there are some private ones as well. For more information and the location of the incubator nearest you, call the National Business Incubation Association at 740-593-4331 or the Small Business Administration at 1-800-827-5722.

Can you handle the impact of business ownership on your personal life?

Being self-employed is fundamentally different than being an employee. The distinction between work time and personal time blurs. If a problem arises with the business, it's your problem, and it won't go away merely because you've closed the doors for the day.

Decisions you make regarding the business will have a direct and immediate impact on your personal life. For example, if you're in retail and decide to remain open evenings, it's your time that's affected. You're likely to be on call 24 hours a day in the event an emergency arises relating to your business.

The impact is even greater if your business involves working out of your home. You may experience conflicts over the use of space for business or personal purposes. The distinction between your personal life and business life becomes blurred. Even when you're at home, you're also physically at work. On the upside, there's no commute and you can eat cheaper at home

If you have a family, it's important to measure the impact opening a new business will have on them. It's best to discuss this as soon as you seriously start to consider the idea. Both you and your family must be willing to put up with the changes in your lives that owning a business will bring. Some people experience emotional and physical strain from being on their own and working the hours it takes to succeed.

These aspects of day-to-day living will be seriously affected by your decision to open your own business:

Certainty and source of income. One of the biggest differences between being self-employed and being an employee is the source of your income. Employees can generally expect to receive a paycheck at fixed intervals and for a known amount. (Those working on commission or receiving tips have less certainty regarding the amount.)

As the owner of a new small business, you'll be paid only when and if the business generates enough money. Even successful businesses rarely generate a profit in the beginning stages of operation. You'll have to be prepared for the period during which your expenses will exceed any income derived from the new business.

Health insurance. Although employees are being called upon to pay an increasingly larger share of health insurance costs, it's even tougher for a small business owner. There is no employer to pick up a portion of the premium cost. There's no pool of employees that would allow you to negotiate a more favorable rate than you can get on an individual policy. On the other hand, you may be able to join an association of other small businesses so you can take advantage of cheaper group insurance rates.

For those covered under employer-provided health care plans who leave to start a business, there's the option of continuing coverage through the former employer's plan under the COBRA law. However, you're responsible for the full cost of premiums: The former employer generally won't be contributing anything for you. Also, you're entitled to continued coverage for a limited period of time: as little as 18 months or as long as 36 months, depending on the circumstances. You might be able to get better coverage for the same cost elsewhere. If your spouse has insurance through an employer plan, consider coverage through that plan.

Retirement savings. Retirement savings are a little different than health insurance. If you don't have health insurance and experience a catastrophic injury or disease, you may be wiped out. The impact of failing to save for your retirement can be even more damaging, but people tend to minimize the risk because "retirement is such a long way off."

It's no surprise the saving rate is higher among employees than small business owners. Employer-sponsored plans provide a convenient and painless way to set aside a portion of each paycheck. A small business owner has to make a conscious decision to save, outside the framework of a plan administered by someone else. That decision often can be deferred or forgotten when you feel the cash coming in has to be put right back into the business.

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