Q: My partner and I recently
established a homebased company after leaving our full-time
positions. We've received a fair amount of sales in a short
time, and now my partner wants to get a "real office"
with a receptionist. I agree that one of our goals should be to
grow the business, but I think we should assess the growth and cash
flow, look at financials in 6 to 12 months and then determine if
it's prudent to start allocating money to overhead. Considering
that we still need to buy at least one van and hire field help, the
expense of an office space would be foolish, in my opinion. This is
becoming a real bone of contention between us. Any advice?
A: Who is the
big-cheese-buck-stops-here boss of the company? A business
isn't a democracy. I'm not a big fan of 50-50 partnerships
(or even worse, 25-25-25-25 partnerships), because at some point,
one person must make the call. Who's that one person in your
company?
Both sides of this argument sound reasonable to me. You have a
very good point about stockpiling cash until you feel comfortable
increasing overhead expenses. I can also see your partner's
point. There are downsides to the home office setup. And having a
receptionist would be nice! A business should suit the needs and
wants of the owners. No one's who's wrong here-you have
different needs and wants, that's all. So who wins?
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I think it's time for a strategic planning retreat. Take a
step back, leave the business for a day or two, and work out the
answers to these questions:
- How much do you want to make?
- How much do you want to work? Where and when?
- How do you define success? How can the business serve your
personal goals?
- How can you get there from here?
- Who's the biggest cheese? Who makes the call when you have
different opinions? Who does what, when and how at the
company?
Get the idea? The answers to these questions need to be written
down. They're the basis of your business plan and operations
manual.
Another thing: Every company has overhead. Owner's salary
and benefits are overhead items. (Beware the tax implications of
your distributions. Are you working with a good accountant? A sharp
CPA and/or bookkeeper is essential to your success.)
If you want to make more money, or if you choose to lease office
space or buy a building, your overhead costs will go up. That's
fine-as long as you raise your prices to cover those costs. Believe
me, if your company depends on low prices to make sales, you
won't do well in the long run. If you and your partner are the
best at what you do, feel free to charge enough to make all your
dreams come true.
Visit my Web site, www.barebonesbiz.com. Click on the
"Numbers Cruncher" button and find the demo. Check it
out. Numbers Cruncher is a cool spreadsheet program that lets you
play with different budgeting scenarios. Play the "What
If?" game. Plug in the anticipated lease payment and see what
it does to your selling price. Plug in a huge salary for
yourself and see what you would need to charge to make it happen.
This tool can add data and reason to your discussion of what you
should and shouldn't do with the company.
Your situation is not unusual, and certainly you can get past
these sticky points and move to greater and greater successes if
you get it al lout in the open now and agree on these major
points.
Author Ellen Rohr nearly starved in her family's small
contracting business-until she learned how to manage money.
"Do what you love, certainly," she says, "but the
money won't just take care of itself." Ellen's pricey
college education didn't prepare her for real-world business.
"Financial business basics aren't that difficult...but
where do you learn them? Unfortunately, business literacy isn't
taught in school. I teach the basics and take the mystery out of
making money." Ellen's mission as an author, columnist and
seminar leader is to help people make a living doing what they
love.
The opinions expressed in this column are
those of the author, not of Entrepreneur.com. All answers are
intended to be general in nature, without regard to specific
geographical areas or circumstances, and should only be relied upon
after consulting an appropriate expert, such as an attorney or
accountant.