Assumptions people have about running a business can result in an unpleasant surprise. These 3 business facts that may surprise a layperson.
There are no qualifications required to become a small business entrepreneur; all you technically need is to have a product or service you want to sell, and some people who want to buy it. Everything over and above that is up to how you manage it, and while some classroom learning can certainly help, there are plenty of working entrepreneurs in boardrooms across the world who never had a day of business school in their lives.
This is not an encouragement to do things their way, incidentally. The fact is that more often than not, the person raking in the big money will be someone who has prepared themselves for the job by learning everything they could from both an academic and a practical standpoint, because when it comes down to it, you need to be prepared for what business is going to throw at you. Below, we’ll look at a few examples of things you’ll need to know in business – but which you might not have known before you started.
Borrowing is a fact of business life
If an individual wants to buy something expensive like a car, a house or similar, then it is expected that they will borrow to achieve this, and pay it off over time. You could look at the value of some of the top businesses out there and assume that they could make key big-ticket purchases in cash – but, in reality, even billion-dollar businesses will take on loans. For the most part, it’s because spreading the cost keeps a cash flow manageable. In many cases they could make the same purchase in cash, but they would then be less protected against emergencies. As long as borrowing is manageable, it’s smart business.
A business balance sheet doesn’t reflect the payments they have received…
Once a business has been operating for long enough, it will have accumulated regular customers and become part of a supply chain – which means that other businesses will rely on your business for supplies, while you in turn rely on others. As with the point above about borrowing, a lot of this supply chain rests on faith that payments will be received, not that they have been. Balance sheets will reflect payments whether they are taken already or are in the form of a cash guarantee; regular bank reconciliation will take place regularly to ensure that actual payments are being received. These guarantees are important, and if a company goes bust without honoring them, others in the supply chain are at risk too.
The first three years in business may not see you break even
There is a reason people say that it’s easier for people who already have money to make more. That reason is, in full, that it’s absolutely true! The early days of a business are likely to see you making a loss, as you face a raft of startup costs before you even begin to receive payments inward. Of those costs, the most expensive will usually be a commercial rent or mortgage, so entrepreneurs who work from home will likely see a profit much sooner, but you still shouldn’t expect to see a big profit in your first year, or be discouraged if it takes time. People who have already made money can bear those overhead costs more easily, so they have a greater chance of success.
The assumptions so many people have about running a business can mean that the reality comes as an unpleasant surprise. But if you know the details, it’s much easier to ride out the tough times and achieve success.