Perspectives From Small Business Interviews
Farm Business Management Update, October 1997
By David M. Kohl, Troy Wilson, Ryan Clouse and the Fall 1997 Small Business Class of the Department of Agricultural and Applied Economics, Virginia Tech
One of the fastest growing courses in the Department of Agricultural and Applied Economics is Small Business Management and Entrepreneurship. The class of 1989 started with 19 students. Today, over 150 students are enrolled in the fall and spring semester courses. One of the class assignments asks students to interview a small business and then to summarize key findings and perspectives. This year, interviews of small businesses represented 46 businesses in 16 states and 2 foreign countries. In addition to the interview, students had to research an article in the popular press that either confirmed or disputed the advice obtained in the interviews. Nearly 70 percent of the articles were taken from the Internet.
Good Help Is Hard to Find
The number one problem facing small business owners was the difficulty in attracting and keeping a good labor force. Some indicated that the strong economy made it difficult to pay a competitive wage. Others cited the increased costs of fringe benefits such as health care and liability and disability insurance adding an additional one-third to the cash wages paid to employees. Sufficient cash flow needs to be generated to cover the new employees' wages and fringe benefits while providing a return to the owner. Allowing children to come into the business immediately after college or high school or hiring friends was considered ill-advised. One owner emphasized allowing children to be children.
Motivating employees can be challenging. The most powerful way to motivate employees is to listen, and actually hear, their suggestions. Employees can assist in solving problems that you might otherwise miss. Complimenting employees in public but always criticize them in private shows your respect for them and avoids embarrassment. Customer service starts with the employee first. The employee is often the first contact with the public; thus, having a fulfilled employee is critical to customer service. In addition, self-motivation, empowered employees are critical in time management, particularly for an expanding business.
They Are Working Too Much
The class of 1997 was able to uncover the fact that time management and long hours go hand-in-hand with a small business. As one small business owner stated, "A small business is like a child that requires 24 hours of attention." One of the students commented, "At least you can send a child to school." Many small business owners work more than 3,000 hours per year and as much as 4,600 hours annually, which is comparable to the national small business statistics findings. To be successful, business and family activities must be separated, particularly if you both spouses are involved in the business. Also, partners having similar work and moral values and realizing that these change over time will be successful.
Don't Put All Your Eggs in One Basket
Surprisingly, many small business owners suggested investing as much as 10 percent of net earnings outside the business in retirement accounts. Nearly one-half of the business owners interviewed were meeting this objective. Some employers have started plans for employees and are finding it an excellent means of retaining workers. Some also suggested it as a method to reduce taxes and earn tax-deferred returns. These retirement accounts can serve as a diversification tool that is exempt from bankruptcy or lawsuits.
Business and Marketing Plans
A business plan is a must if the enterprise is unique or unusual for the area. Approximately 50 percent of the owners had developed business plans at the onset or for expansion of the business. Business plans, they said, must be developed by the owners and managers who are assisted by a consultant. A marketing plan with a well-defined target market addressing the product, price, promotion, and distribution aspects was also considered critical.
Good Credit and Lender
As many as 27 percent of all small businesses are started with a credit card, according to a recent USA Today article. The small business owners generally agreed that community banks were much more supportive in lending to small business compared to large regional or national banks. One small business owner who had failed said indicated that they had exceeded the credit limit established by the bank. The biggest mistake found was borrowing from a friend or relative. They stated, "Friends don't let friends have credit!" An excellent credit history is critical, as more banks are emphasizing it in their loan analyses. One owner suggested borrowing from a bank that understands your industry, the area, and that will stick with you in good as well as bad times.
Finally, fear of failure should not stop you. You have to use these elements as motivation when you are down and out. Any person in small business should form a network of businesses to exchange ideas and perspectives.
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