CHALLENGES FACED BY ENTREPRENEURS

Dash

EPISODE 06

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ABOUT THE SHOW

Dash

We have an in-depth look at the challenges faced by entrepreneurs when we answer a question from Sam one of our listeners on the challenges faced by entrepreneurs when they start a new business.

Having worked with numerous small businesses over the years I have identified 5 key areas all new business owners should focus on before opening their doors and well into the first 12 months of operation.

WHAT YOU'LL LEARN

Dash
  • The 5 most common challenges faced by entrepreneurs and mistakes new business owners can face
  • How the lack of proper planning can derail any new venture before it even begins
  • Why it is important to start planning before you spend any money and how our Free Business Plan On a Page can help with that
  • Importance in clearly defining the roles and responsibilities within your team and how a solo operator can cover all of these with good time management
  • Why understanding your financial numbers and have regular access to them is so critical
  • The importance of having a cashflow budget before you open the doors
  • The struggle of having inadequate start-up capital.  

EPISODE TRANSCRIPT

Dash

G’day g’day, Jason here from the Business Made Easy Podcast, where we
Make Business Easy.
Wherever you are in the world, whatever you’re up to, I hope you’re keeping
out of trouble and business is heading in the right direction for you. We’ve
got a great episode today because we’re going to be answering the question
from one of our listeners.
Before I get into that though, I wanted to just thank you; for those of you who
have been listening and have been providing feedback to me on the show,
thank you so much. It’s really appreciated because with that information,
that feedback, I can certainly improve the show and make sure it’s a great
show for everybody and really hitting the mark in terms of what you want to
know as listeners out there in the business world.
It is a business podcast, it is by definition designed to make business easy, so
we certainly want to make sure that we’re doing that for you. The downloads
and the feedback that we have had, have certainly exceeded our
expectations for this early stage of the show, and it’s thanks to you for your
support, and I really appreciate you. Thank you.
If you’ve been listening to the show and you haven’t yet, please pop over to
iTunes if you would like to leave a review because it’s those reviews that do
actually help promote the show within iTunes and help other people in
business find the show. If you haven’t done that, I’d really appreciate it if you
do think it’s worthy to go over and do that; that’d be fantastic.
Today’s show, it’s just me today, but I’m going to be answering a question
from one of our listeners, Sam as I said earlier. Sam has just started out in
business down in New South Wales, which is in Australia, and he had a
question that he’s come in and asked. How he did that, he went over to our
website at businessmadeeasypodcast.com, he pushed the record button
there and then he was able to leave his question which I got from him.
I’ll play that question in a second, but before I do, it was such a great question
that I’ve decided to dedicate the complete episode to it because there are so
many elements and components to the question that I thought to give a true
answering, I guess, if you like, for want of better words, we really needed the
time to cover off on the various elements of it. I’m going to do that now.
What I might do now is play Sam’s question, and then I’ll come back and
answer it. Here’s Sam.
Sam:
Hi, Jason. I’m a new business owner from New South Wales and I’m
wondering in your experience, what are the biggest challenges you see your
clients face when they’re starting their new businesses?
Jason:
Sam, thank you so much for your question; it’s a great question, and I will
answer it by breaking it into five components that I see; my top five.
There’s an enormous amount of challenge in any business but these are the
five most common ones, and I think the five that if you do properly and get
them sorted from the outset that you’ll have a lot more success and a lot less
stress in starting out.
The biggest one I’ll start with, number one, is the lack of planning. I say that
because if we get into the mindset of a new person starting out in business,
when someone comes to me typically, and they’re starting out in business,
their eyes are normally nice and bright and they’re passionate about what it
is that they’re about to go and embark upon. Whether that be making
widgets or whatever it is, they’ve got this great idea, and it’s going to shoot
the lights out, and it’s just going to be a hit from day one. That is fantastic if
that happens.
What I do see behind that is no planning whatsoever. It’s a great idea, they
know how to implement the idea, but in terms of assessing whether it is a
great – whether the marketplace wants that idea or not or whether or not
they can get suppliers for that idea or how that’s going to work or where
would they market that idea; there generally isn’t a lot of planning;
particularly more so in the financial aspects of it as well.
It’s just so critical that you plan right from before spending a dollar. It’s a lot
cheaper to sit down with a piece of paper and a pen and a few hours of
brainstorming at the very least before it is committing dollars – hard earned
dollars to something that’s potentially going to be a time bomb down the
track.
That would be my – my critical thing is planning. I covered it in episode
number four of the show, and there’s a link on the website; on the homepage
actually, to a business planning template. By planning, I mean at the very
least sitting down and doing a business plan about what the vision is of the
business, the marketplace it’s going to operate in, what your customers look
like, the strengths and weaknesses and threats of the business.
The template and the guides I’ve got over there in episode four and in the
downloads; I’ve got a step-by-step guide on how to do it. At the very least, I
think if that planning is done correctly, you know when you start off down
that road what you are in for. The better you do that planning, the better
clarity you have as you start off in business. I would thoroughly encourage
that, and that’s probably the biggest area that I see lack of planning.
The other thing just on that planning too is that having the courage to pull the
pin on the idea if the planning is showing all negatives or if it’s really not
stacking up, really either dig deeper and make sure that data are right that
you’re assessing and evaluating. If it does prove to be correct, have the
courage to pull out or re-jig it some way. Don’t just carry on blindly because
you really want it so badly. We can often get caught up in the idea of
something being right, and we just get clouded and blinded by our own
optimism. It’s not a great outcome if you go down that path. Make sure you
do proper planning, can’t stress that enough.
The second area that I see, and I questioned whether to put this number two,
but I will. It’s the lack of clarity around the roles within a business. When you
get into a business, and you start out in a business, there are many roles that
every business has, and I like to break them down into three key areas. I got
this idea from Michael Gerber and his book, The E-Myth, which is a fantastic
book, and I’ll put a link over in the resources section of the website.
In that book, Michael Gerber breaks the three components down into the
area of a technician, and the technician is the doer of product. They make the
widgets; they make the goods and services that that business is selling. If
you’re working in a paint-making factory, then you’re making paint and
running all the operations of making a paint, getting the materials in, putting
it all together. That’s the doer or the technician of the production area of the
business; we’ll call that production.
The other area is then the marketing; sales and marketing section of the
business, and that’s finding customers and finding marketplaces to sell your
products and identifying all those key areas.
The third element is the management aspect of the business, and that’s
making sure the bills are paid and the rents paid, and we’ve got the premises
to operate out of, and we’ve got a bank that’s collected – helping us with our
financing and funding and all that sort of thing. That’s the management;
running the staffing, making sure we’ve got human resources and that’s all
done in the management side of things.
We’ve got three key areas; production, marketing and management. I think if
you put those three headings at the top of a page, you will see then that you
can drill down further, to further roles under each of those headings in the
business.
Now, when you’re starting out in business, you don’t necessarily have
someone to fill all those roles, and you quite often are the person doing
everything. If you look at a small sole trader that’s just starting up in
business, or someone who’s just got an idea, it’s their first business, and they
don’t have a lot of money, they don’t have money to go and employ a lot of
other people to do these things. What happens is that they don’t clearly
identify these roles at the outset before starting. The problem with that is
that you don’t – each of these roles has different needs and different skill sets
required to do them. The marketing person wouldn’t know how to make
paint in the paint manufacturing business. The marketing person wouldn’t
know how to wire a powerpoint in the electrical business necessarily.
They’ve got different skill sets and different requirements.
Where the problem happens for the new business owner, because they don’t
have properly trained people in those areas and they haven’t identified those
areas and those areas needs in the business, then you get this conflict that
happens between them. You’ll find that you’ll have something, or you might
have an ad that’s supposed to go out on Facebook for your business, and
that’s the marketing department. But, because you’re busy over in the
technical section doing something else working on making whatever it is that
you’re making, and you forget to do the Facebook ad etcetera, and then you
drop what you’re doing there and go over and do the Facebook Ad, and then
another fire pops up over here in the management area. You end up with this
real conflict between roles, and they’re all in your head; you’re the one doing
them all.
It starts off okay while you’re passionate; when you start out in business,
you’ve got energy and enthusiasm and passion for what it is you’re going to
do. When you get into it, and these little fires keep cropping up, you keep
running from one to the other and trying to put it out, and you’re going, “God,
this isn’t what I had in mind.”
So many people I talk to go, “Wow, being in business is so different to the idea
of being in business. I didn’t realise there was so much involved.” Again, this
is why the planning is important and doing these steps, I think, is critical.
How you overcome this problem is that by clearly identifying those roles and
knowing what those roles are and how much time of your week they need,
you then sit down and plan when it is that you’re going to work on those
particular roles.
For instance, for me for example, in my business, the accounting practice,
what I do is I set one day aside per week. That’s my day of the week where
I’m going to be working on my business on the marketing side of the business,
on developing new things for the business. That’s one day a week that gets
that attention and nothing else enters it in that day; that day is just purely for
that.
What that does is it frees me up to move forward and grow, and only focus on
what’s important for that day. I clearly identify key times during my week
when I’m going to be working on each particular element, so I know if I’m
working on a marketing task, or I know I’m working on a management task, or
I know I’m working on a production task. That’s what I would encourage a
new business owner to do as well, is to identify the roles and work out and
identify when you are going to work on each bit. Each role does need
attention, and if you neglect one of those roles for too long, that’s when the
fires keep cropping up, and that’s when you’ll start getting stressed, and
cracks will start to appear.
It’s not enough to go, “I’m just going to work harder, and it’ll be okay because
I’m passionate about this,” it doesn’t work that way. It will erode that passion
quicker than you realise, and your eyes will be going from nice and bright and
positive to really sunken and deathly in a matter of no time at all.
I encourage you to look at the clarity around the roles within your business
and identify those with clear job descriptions, preferably; what this job
entails and why it’s important and what skills are required in that role as well.
The other thing I would do while – just while I’m on that before I move on, is I
would also – just on the skills of each role, clearly mark out what skills that
you have for each of those roles, and compare them. I’ve seen some business
owners are really good at doing the technical stuff, but they can’t do the
management stuff and the marketing stuff. As you grow, they’re probably
roles – the first roles that you’re going to outsource as you go along, and
they’d be the critical ones that I’d be looking at outsourcing. If you’re
stronger on the marketing then focus on the marketing, but then maybe you
might employ to fill the technical roles or the management. You might get a
bookkeeper in for instance if you’re not good at the management or
accounting/finance role. You might get someone in to help you in that area
first, and that just helps you prioritise the order in which you bring new skills
into your business as well. That is important to do as you can financially
afford it and keep growing. That’s that area.
The third area I really feel strongly about, and that is fully understanding
your numbers. Understanding the numbers in your business could not be
more important, and that is understanding what the profit and loss statement
is telling you; having one for a start is critical. Having a profit and loss
statement, having a set of financial statements that you can read and
understand, that tell you exactly what is going on in your business at any
given point in time. It’s not enough to wait until you go to the accountant at
the end of the year to do your annual tax return to file to the tax office or the
IRS depending on your country. It’s not enough to wait to go and see your
accountant. You really should have some form of management accounts
along the way that are giving you accurate information about what’s going on
in your business and what those numbers are telling you.
I see that as a big area that people do fall down in and have a challenge with
when they’re starting out, they just don’t realise the importance of having
that done properly. Not so much not just having it, but reading them and
understanding that behind each of the numbers in those financials, there are
drivers that are driving the results that are coming out. You need to drill
down there, and I generally recommend a dashboard type report if possible
that can show you in a glance what’s going on. That’s a big one.
The fourth area is cash flow management and budgeting; proper cash flow
management and budgeting before you start your business. Now it becomes
a challenge later when you start a business because lack of proper cash flow
budgeting, you are basically driving a car blindfolded. If you think of – the
best way I like to think of cash flow is it’s a map, it’s a plan of where your
business is heading and what money you’re going to have in your bank
account along the way at each particular point in time. The better you do
this, the closer it should be pretty well correct, and the better you will have a
feel for what’s going on in your business.
If you can do a proper cash flow planning budget for no less than 12 months
ahead of time, then as numbers are coming through on your business – so
you’ve been reading your financials as I talked about in point three; you’ll
know pretty well if this result happens in my business, this is going to be the
cash flow outcome, this is how it’s going to affect my cash flow down the
track. You’ll be able to monitor that as you go along, and it’s going to give you
great signs and great signals of where you’re going to have any potential
pitfalls and that sort of thing.
It really does highlight potholes and potential cash flow shortages where you
might need some extra cash to run your business for whatever reason. It is
an area that I do see that new business owners – it’s not actually new
business owners either, to be honest. It’s an area that I see probably – it’s
probably one of the most common problem challenge areas for business, is
always managing cash flow. Cash is like fuel in your car, if you think of your
business as your car, the petrol in the car is a cash flow and that’s what keeps
chugging along.
As your business grows, that means your cars getting bigger, that means you
need more petrol, more cash to run your business. Your cash flow budget will
highlight just how much you need, and we might do an actual episode if that’s
of interest to people; going forward we might do an actual episode on some
processes, and I’ll put some templates up etcetera to help people to do better
cash flow budgeting. It’s a critical one, that one.
The fifth area, Sam, that I find people struggle in business, challenge wise, is
inadequate start-up funding capital, or inadequate money to start your
business. They really do fail to have enough backing behind them to get their
business going, and that is where they struggle because when you’re starting
a new business, it’s a very stationary item. It’s sitting there on the road ready
to go, and it needs petrol in the tank and a little bit like cash flow, you need to
know that you’ve got enough fuel to get you to the next petrol station. The
next petrol station is the next lot of money coming into your bank account
from customers etcetera, so think of it like that.
A couple areas I see wrong here. Firstly, not calculating how much working
capital they need, or working out how much they need, and then when they
do get it, they don’t structure it correctly for their needs. Now, let me give
you an example of that. Let’s just say we’ve done our budgeting, we’ve done
our planning, everything’s worked out, everything’s added up, and we’ve
worked out that we need $50,000 in our bank account to start off our new
business venture. That’ll get us going and get us making some sales.
We could structure that a number of ways, but let’s just say we went to
somebody and said, “We’d like to borrow $50,000,” and they said, “Okay,
we’ll give you that $50,000 for three months, and it’s at an interest rate of
25%.” If I haven’t looked at whether that’s going to be correct for my
business, I could be in for a real lot of pain there. If I get to the end of that
three months and my business is still taking time to get going, I don’t
necessarily have that $50,000 to repay at that particular point in time.
This is a real problem, I’ve seen businesses come into me, and they’ve been
totally ill-advised in terms of how to structure the working capital
requirements for their business. It has hurt them big time in terms of not
having the – (a) it’s been expensive and (b) just totally inappropriate payback
periods and things like that. I can’t stress that enough, getting that working
capital right, should you be leasing the equipment or should you be
borrowing from a bank or whatever it is that you’re going to do; you really
need to make sure you’ve got that foundation for your cash flow and working
capital down pat as well. That needs to be done correctly.
That’s my fifth one, Sam, that I see people struggling with. I do think, as I said,
there are more out there, I mean we could have covered off on staffing and all
those sorts of things as well. I think really, these five here when I look at
them; if you sat down and got those correct in your business you would take
like 90% of the struggle out of starting a new business, and you would
maintain your enthusiasm and passion and energy a lot more as well too. It’s
just something I see all the time, as new business owners start off and just fail
to implement these bits.
Just to recap, the big areas are lack of planning, so making sure you do the
appropriate business planning before you start spending money and
committing yourself to lock yourself into a business. Make sure you get
clarity around the roles within your business and make sure you’re
understanding of those roles and what skills you have to add to those roles
and where you’re going to need to outsource. Fully understanding the
numbers, the profit and loss, the balance sheet, what’s all that telling you in
your business. The cash flow management, what’s your bank account going
to look like going down the track as you go forward. Then inadequate
funding to start up, making sure you’ve got enough money in the bank and its
structured correctly for you to make sure that you can get further down the
road and achieve success in your business, and that’s a critical one as well.
There you go, Sam, I hope that’s answered your question. I thank you so
much for asking that question. I do think there’s a lot of people that could
benefit from it and that’s why I’ve dedicated this whole show to just
answering that one question because I do think there’s a lot of components in
there that can help other people. Sam, for asking the question I’m going to be
sending you out a Business Made Easy Too Easy T-shirt which is going to be
coming your way, so we’ll be in contact with you shortly to get that out to
you.
For anyone else who has a question in business, please feel free to go over to
the website – to the businessmadeeasypodcast.com website and you can
record your question. I will get the question sent to me via voice message
just as Sam did, and we’ll get an answer on the show for you as soon as we
possibly can.
If you haven’t already, please feel free to subscribe on iTunes to the show.
We do value you listening, and we’re thrilled to have you with us. The easiest
way to do that is to go over to businessmadeeasypodcast.com, and you can
subscribe over there, and there’s a lot of resources and things like that that
we’re going to be building up on the show over there, so feel free to go over
there and have a look around. You can subscribe to iTunes and Stitcher over
there on the website and just feel free to drop me a line also if you’ve got any
questions that you’d like answered or just want to say g’day.
Okay, that’s it from me this week on the show. Thank you so much for
listening, I do appreciate you listening and appreciate your time. Whatever
you’re up to this week in business, I hope it goes well for you, and you stay
safe, and here’s your success.

READ MORE

LINKS MENTIONED

Dash

The E-Myth, Michael Gerber dispels the myths surrounding starting your own business and shows how commonplace assumptions can get in the way of running a business. He walks you through the steps in the life of a business from entrepreneurial infancy, through adolescent growing pains, to the mature entrepreneurial perspective, the guiding light of all businesses that succeed. He then shows how to apply the lessons of franchising to any business whether or not it is a franchise. 

This template and  instruction guide will help you identify the growth opportunities hidden in your business. Identify the things you should be doing and highlight the things you should stop doing.

Start designing your business profit with purpose.

Join other business owners in our Free Facebook Community all sharing their trials, ideas and wins in business. It's a fantastic community of driven and supportive entrepreneurs.

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