Jun 14, 2020

Small Business Ownership: Expectations vs. Reality

Starting a small business can seem both exciting and dangerous. The flexibility, autonomy, and reward for striking out on your own can be appealing, but the financial risk and operational challenges can also feel incredibly overwhelming.

Still, millions of people throughout the US start small businesses every year. In fact, 543,000 new businesses launch every month.

While you should be excited to start and run your small business, it’s also important to understand the realities of your position. Consider the myths and realities of small business ownership below that cover everything from funding and marketing to entrepreneurial burnout.

Shark Tank vs. Traditional Funding Options

When most people think about business funding, they envision Shark Tank pitches resulting in equity financing from venture capitalists. In 2018, more than 18,000 startups were funded by investors, with over $254 billion spent supporting these businesses. 

While venture capital is great, the reality is most entrepreneurs do not have angel investors willing to risk significant money on their small business ideas. Those who do get VC funding are locked into partnerships with those investors, as well as the added stress and responsibilities that come with it.

Keep in mind that your small business may need funding at any time, so understanding what resources are available will help you make the best financial decision for your situation.

For example, many small business owners who have operated for decades were left out in the cold after the first wave of PPP funding and had to pivot to other financing options to avoid closing their doors. Financing isn’t just important for getting your business off the ground—it can come into play down the line, too.

Here are a few of the most popular funding options small business owners have, along with their pros and cons.

Investors

While you may not be able to get venture capital as a small business, you can seek funding from your network. Consider reaching out to family, friends, colleagues, and other people in your community to invest in your business. 

Seeking investors is one of the most popular ways to raise capital for your small business, but it comes with strings attached. 

Some investors want to be hands-on or request frequent updates, which can be more oversight than you want. You also risk straining relationships when you borrow money, especially if your business isn’t successful. The added stress and work of taking investment funding can lessen the appeal.

Bootstrapping

An alternative to seeking out investment funds is bootstrapping your business. Bootstrapping is simply funding your business using whatever means you already have without seeking outside sources.

Bootstrapping is one of the most secure ways to scale your business because you’re not overleveraging your company. If you don’t have the money or resources to justify an investment, you simply wait until you do. This minimalistic approach ensures that your business remains self-sufficient—and if it doesn’t, you’re only out what you put in.

Many entrepreneurs will bootstrap their businesses for as long as they can, taking money from their savings to get it off the ground. Eventually, however, it may reach a point where they need additional resources beyond their savings or the company’s reserves.

Small Business Loans and Business Lines of Credit 

If you don’t have the funds to start and run your small business, there are other options for funding: securing a small business loan or business line of credit

For example, a small business loan can give you a low-interest loan up to $2,000,000 over 5 years, and a business line of credit can reach $500,000 with a 2-year maturity.   

Both of these funding options provide financing quickly without having the headache of an investor or the limitations of bootstrapping. As long as you’re diligent and strategic with your loan repayment, taking a small business loan is an excellent option for most entrepreneurs.

Interestingly, some financial experts consider taking out a small business loan a form of bootstrapping because the owner takes on the financial risk rather than seeking equity partners. As a result, it can be more rewarding to build your business using a small business loan because you retain full control over your business.

Business Idea vs. Execution

We’ve all been there: it’s Friday night, you and your friends are out for dinner, and after a few drinks, someone says, “I have this amazing business idea.” Then, they go into this spiel about some revolutionary product that would change the world. What happens next? Nothing. 

Most people can think of a good business idea, but few people are willing to put in the work executing that idea. If you’re considering turning your idea into reality, a great place to start is developing an execution strategy, also known as a business plan.

Your business plan will include big-picture information like your mission statement, branding, target audience, and market research. It can also include details like the expected cost of materials, planned profit margins, and goals for expansion. 

Consider your business plan the strategic roadmap that guides your decision-making. While not completely necessary, business plans can have huge implications for the success of your small business, especially when it comes to financing.

All business plans should be unique to the organization, but they do tend to cover similar topics and themes. You might start with an intrinsic analysis of your organization and principles. Consider what pillars guide your company and how that sets you apart from your competition. 

Then, you could look at your operations and how you intend to generate revenue. Finally, you might conduct consumer research to shape the market viability and your branding strategy. 

The good news is that you can start a business plan before you ever seek funding or begin launching your business. Once you have the resources needed, your business plan will help you decide what to focus on and how to drive your business forward.  

Getting Rich vs. Becoming Profitable

Most entrepreneurs don’t start a business to become poor; they do so to make money—hopefully, a lot of it. While you may have a great idea and solid business plan, you need to also develop accounting and financial acumen to make smart decisions that are focused on profitability. 

Without being able to balance your books, how do you know if you can afford to hire a new employee? How will you determine whether you profited off that 2-for-1 promotion?

Great business owners understand that the best way to grow their wealth is to focus on their finances. They don’t waste money or overspend—they focus on maximizing their revenue. These skills and the insight needed to make these decisions are often rooted in accounting principles.

Accounting plays a part in almost every aspect of your business. It can reveal your best-and-worst-selling products. It shows unnecessary expenses that can be cut.  

While accounting and finances might not be your expertise, you need to develop an eye for numbers, even if you outsource to a bookkeeper or accountant. External help with your finances can streamline the process, but nobody knows your business like you do. 

You—not the accountant—make the business decisions, so it’s important to understand the meaning and context surrounding the data.

However, you can still work with an accountant to guide your business decisions and help with taxes. A recent survey found that 23% of business owners contact an accountant for help once or twice each year and during tax time. Consider using an accountant as needed to review your books, make sure everything is balanced, offer advice, and assist with your taxes. 

Going Viral vs. Branding

Social media and the internet as a whole have changed the way people think about marketing. A lot of entrepreneurs believe they can blow their brand up overnight by creating a viral video or running an ad on Facebook.

Unfortunately, the process of brand development is much slower and more methodical.

Building a business from the ground up is a marketing challenge. You need to drive brand awareness and new customers while continuing to innovate and offer great customer service. You must use consumer feedback and market trends to adapt and refocus your brand messaging and initiatives. Turning your small business into a brand is time-consuming and ever-changing.

To make matters worse, there’s a seemingly endless number of places your customers frequent. You must develop a footprint offline and online across various platforms and channels.

Small business owners need to realize that they cannot simply “go viral”—you need to create a strategic and measured approach to marketing your brand.

Below are a few marketing realities that you need to know when promoting your small business.

Startup Life vs. Employee Rights and Company Culture

We’ve all heard the stories and seen Hollywood’s representation of what it’s like working for and starting a new business. You operate out of a garage or conduct business calls between ping pong games. You work unpaid overtime to hit the deadlines and sacrifice everything for the cause. After all, it’s the “startup life.”

While launching a business does often lead to odd and unique circumstances, the reality is that as the business owner, you have legal and ethical requirements. Not to mention, you are the leader of the company and have a responsibility to your team to build a culture that extends well beyond Friday Happy Hours and icebreakers.

You may be a small business owner with just 1 or 2 staff members, but that doesn’t mean you are exempt from anti-discrimination laws and other employee protections. Following the hiring guidelines set by the state and federal government, along with other business best practices, can prevent legal recourse or the development of a toxic work environment. 

With only a few employees on staff, you need everyone to pull their weight. Hiring the right team members can take work off your plate and help your business thrive. When you do find great talent, you want to keep them. Developing a great company culture can help you mitigate employee turnover.

Expected vs. Realistic Timelines

All the planning in the world cannot give you the foresight to predict with any certainty the time it’ll take you to launch and scale your business. While you might expect to break even in 6 months, it could take a year. Even though you anticipate finishing a project by January, it could bleed into March.

Don’t worry if your timeline isn’t perfect. There are a lot of factors affecting your business that are out of your control. Many small business owners learned this lesson firsthand during the coronavirus. You’d be hard-pressed to find a small business owner who built global pandemic contingencies into their business plans. 

The reality of running a business—small or large—is that timelines fluctuate. Try to do your best to accommodate uncertainties by designing buffers into your timelines or setting clear and realistic expectations with customers.

Additionally, be flexible with your timeline for turning a profit. As a rule of thumb, it takes most small businesses 2–3 years to turn a profit. 

Flexibility is one of the top traits that entrepreneurs can have, especially with timelines. If you can handle delays and other changes to your timeline while keeping your finances balanced, then your business (and your mental health) will be stronger in the long run.     

No Days Off vs. Burnout

Society likes to picture overworked entrepreneurs giving up family vacations, skipping weddings, and missing major life milestones of their kids in the name of success. 

Indeed, when you hear that you won’t turn a profit for 3 years and have a million-dollar loan to pay off, the idea of taking a vacation seems like a waste of time and energy. However, this time off is essential to having a successful small business and avoiding burnout.

You are running a marathon. Your small business needs to be open for several years and become a pillar in your community. If you aren’t taking time for yourself, then you risk burning out and watching everything you built crash around you.

According to a study by Michael Freeman, founders are 50% more likely to have a mental health condition. This problem can easily be caused or worsened by the stress of running a business. Entrepreneurs are twice as likely to suffer from depression than the general public and 3 times as likely to suffer from substance abuse. 

Instead of casting off your vacation time so you can focus on the business, embrace your time off. Dedicate at least 1 day a week for disconnecting from work to spend with your friends and family. Then, challenge yourself to take at least 3 vacations per year: 1 for yourself, 1 for your significant other, and 1 for your family as a whole. 

These breaks will help you prevent burnout, keep you recharged and motivated, and prepare you to make sound business decisions when you return to work.

Becoming a small business owner is exciting and challenging. Your eagerness to jump in and create something amazing can drive you to make your dream a reality. However, it takes skills, knowledge, and expertise to keep these dreams alive. 

Consider your expectations for running a small business and challenge them with the realities that others have faced. With the right mindset, you can overcome whatever curveballs are headed your way.

About the author

Derek Miller
Derek Miller
Derek Miller is a writer specializing in entrepreneurship, small business, and digital marketing. His work has featured in sites like Entrepreneur, GoDaddy, Score.org, and StartupCamp. He’s currently the CMO of Smack Apparel, the content guru at Great.com, and a marketing consultant for small businesses.

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