“I work both in sales and as a tech for a Midwest technology company. As an hourly employee, I can see the potential for going out on my own and earning far more than what I am currently being paid.
“Today, with so much business, legal and accounting information available free online, along with LegalZoom, and Nolo Publishing materials, it really seems that the rules have changed. It appears far easier to establish and run a business than in the past, with the necessity of having a lawyer, accountant or a business consultant simply ancient history.
“Mr. Beaver, that’s what I think, but my wife — who loves your column and admits to being very old-fashioned — suggested that I ask you before doing anything. Thanks, Ken.”
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
So, have the rules changed? Is it “old-fashioned” and out of date to have a lawyer and accountant or a small business consultant as part of your team, or are things far more complicated than Ken has imagined?
Two friends of this column were happy to share their views of what it takes to run a successful business today, Dr. Lyle Sussman — former chairman and professor emeritus of management, College of Business, University of Louisville — and Dr. David Schein, an attorney and associate professor at the Cameron School of Business of the University of St. Thomas in Houston.
‘Having a Driver’s License Doesn’t Make You an Auto Mechanic’
“Ken is correct that it’s easy to set up everything from a sole proprietorship, LLC or a corporation with these online services,” Schein observes. “But so many businesses formed this way, which began with two or three people, got into serious trouble because no one thought about what happens when things go wrong. I tell folks, ‘Having a driver’s license doesn’t make you an auto mechanic.’”
Sussman expands upon Schein’s point, and stresses the importance of understanding legal implications when starting a business.
“Many entrepreneurs — driven by passion — are often blind to the realities of competition from outside and power struggles from within, and wind up sued because they didn’t have the equivalent of a prenuptial agreement in place before starting the business. These must be carefully drafted — tailor-made to fit your needs — by experienced business attorneys.
“Especially when establishing a partnership, it is critical to have a functional operating agreement among the partners. And, regardless of your business structure — sole proprietorship, LLC or corporation — everyone needs a qualified team of people.”
Sussman sees this team including:
- An attorney who understands small business;
- A business banker;
- A CPA;
- An insurance agent who specializes in small business, and, if leasing or about to buy a property, an experienced commercial real estate agent.
Greater Risks of Failure Than Ever in the Past
“You better have thick skin going into business today,” Schein cautions, and asks, “When was the last time you visited a new restaurant without looking it up on Yelp or some other review site? What if it’s your new restaurant and a competitor is jealous, trying to scare away customers with fake reviews?
“Social media can make your business a success or turn it into an instant failure within a matter of hours, which makes it more expensive to start a business today. Most people do not know how to respond to false or inflammatory comments, all the more reason to establish a professional relationship with an attorney who understands damage control in the internet age,” he strongly believes.
Wonderful Ideas Requires ‘Adults’
To Sussman, “One of the best things about our country is that we encourage people with wonderful ideas to go into business They are driven by passion, excitement and adrenaline. But experience shows that those who succeed realize they need ‘an adult,’ someone who may not have their passion, but does know the minefield of the marketplace, of the law and potential litigation.”
Absolute Truths
I asked Schein and Sussman to list three absolute truths anyone who can see themselves as running their own shop one day needs to accept:
- One of the most valuable courses anyone can take in college is Business Law. The course makes business managers, owners and executives more aware of the many legal issues that arise in the day-to-day operation of any business. Also, this class makes you a safer consumer.
- The most common cause of failure is lack of capitalization combined with a failure of marketing. Be prepared to survive for at least a year without taking money out of the business. Learn to sell yourself.
- Success requires having that fire in your belly, in wanting to deliver a great product, in serving your clients and customers.
If you do not have that fire, don’t start.
-
What Dave Ramsey and Caleb Hammer Taught Me About Handling MoneyFrom Ramsey’s strict discipline to Hammer’s blunt reality checks, their lessons reveal how to save, invest and prepare for the future.
-
Dismal August Jobs Report Offers Rate-Cut Relief: What the Experts Are SayingThe August jobs report came in much lower than expected, lifting the odds that several rate cuts will come through by year's end.
-
10 Ways to Stay Safe From Grandparent Scams and Other Fraud, Courtesy of a Financial PlannerScams are increasingly hard to detect, and anyone can be fooled, from older people to educated professionals. Here are 10 ways to avoid becoming a victim.
-
This Is How the Student Loan Bubble Is Primed to Pop, From a Student Funding ExpertFueled by easy money, inflated tuition and high default rates, the student loan bubble mirrors the 2008 subprime mortgage crisis. We could be headed for a potential financial collapse. What can we do?
-
More Than Money: The Hidden Toll of Financial Abuse of Older AdultsFinancial abuse from schemes involving tech support, government impostors, false sweepstakes, grandchild hoaxes and online shopping issues can cause thousands of dollars in losses.
-
I'm a Financial Planner: Here Are Three High-Impact Ways to Make a Difference With Your DollarsThe world often feels out of control, but here are three ways to use your money — through investments, charitable giving and political donations — to help create a more just and sustainable future.
-
The Unsung Hero of Aisle 5: A Tale of Forgotten Change and Compassion at the SupermarketThis supermarket manager went above and beyond to help when a child forgot her change at the checkout counter. You might be surprised at some of the complications that supermarkets face when it comes to customers' forgotten change.
-
Train, Integrate, Retain: A Strategic Playbook for Adviser OnboardingsBuild a thriving practice by training new advisers with clear goals, structured processes and consistent mentorship for strong team growth.
-
I'm a Financial Professional: Here Are Four Ways You Can Use Debt to Build WealthUsing debt strategically, such as for homeownership, education and more, can lead to greater financial stability and growth.
-
Five Key Wake-Up Calls for Ambitious Business Owners, From a Biz SpecialistYour personal financial plan needs to include a formal exit strategy for your business, or you could be in trouble.
