Business with a Purpose - Guide to Starting Your Own Business

Business with a Purpose - Guide to Starting Your Own Business

Business With A Purpose

by Darrell Griffin, MBA, CPA

"Business With A Purpose" (BWAP) is a bestselling 600 page guide on how to start, manage, grow and protect your own business.  It was written from a believer's standpoint. We will be posting sections of BWAP excerpts each week.  You can also purchase a complete digital copy at the link below.

Order your copy of "Business with a Purpose:" click here

Here is the table of contents: 

Volume I

–Starting and Operating Your New Business 

- Introduction

- Overview Of Small Business In America

- Some Basic Christian Principles For Business

- Some Relevant Thoughts From Great Minds

- Do You Really Want To Be An Entrepreneur?

- Do I Buy A Business, Buy A Franchise Or Start My Own?

- The Business Plan And Operating Your Business

- Forming Your Business

- Financing Your Business 239

Volume II

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- Keeping Track of Your Business and Building It

- Keeping Track Of Your Business (Accounting And Other Fun Things)

- Creative Thinking In Business

- Growing Your Business

- Risk Management

- Conclusion

- Index 

Here is your first excerpt

Overview Of Small Business In America

The United States government defines a small business as a business employing fewer than 500 people. A lot of people never realize how important small businesses are to the U.S. economy. According to the Small Business Administration in a recent report called “Small Business by the Numbers,” small business represents 99.7% of all employers. If this is not impressive, I don’t know what is. Here are some equally relevant statistics from the booklet:

• Small businesses employs more than 50% of all employees.

• Small business represents more than 44.5% of all U.S. payrolls.

• Small business generates 60% to 80% of all new jobs.

• Small businesses produce 13 to 14 times more patents per employee than large patenting firms.

• Small businesses are employers of more than 39% of high technology employees such as engineers, scientists, and computer workers.

• Small businesses make up more than 97% of all registered exporters.

• There are approximately 22.9 million small businesses in America.

 

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The bottom line is that small business is the foundation of the American economy. The president’s report on Small Business stated that small business continues to be the primary method by which women, minorities, and immigrants enter the business world in the United States. According to this report, the number of African American businesses increased over 26% in the last 5 years, and the number of Hispanic businesses rose over 30% for the same period. This tells us that the large corporate environments have not presented equal opportunities to these groups, and so a large number of these groups took matters into their own hands (the American way) and started their own businesses.

Finally, why are small businesses so important to the U.S. economy? Where do you think big businesses are birthed from? Of course, from small businesses. Did General Motors start as a big business? Of course not. Did Proctor and Gamble (two guys that had a fascination with being clean and making candles) start as a big business? No. P&G started as a small business in 1837. That year, the Proctor and Gamble Company began as a small, family-operated soap and candle making company. Early on, as electricity came into wide use, they had to rethink their company and move away from one of their primary products—the candle. Today, P&G markets almost 300 products to more than five billion consumers in 140 countries. Today, P&G has more than 98,000 employees generating more than $40 billion in annual revenues. Not bad for a little partnership started by two brothers-in-law.

“All companies with zero to 500 employees” is a pretty broad definition of “small business.” Let’s take a closer look at “small business” according to the U.S. Census Bureau.

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According to this U.S. Census report, nearly three-quarters of all U.S. business firms have no payroll. Most are self-employed persons operating unincorporated businesses and may or may not be the owner’s principal source of income. Because non-employers account for only about 3% of business receipts, they are not included in most business statistics, including most reports from the Economic Census.

Here are some interesting statistics from the U.S. Census Bureau:

Firms with no employees - 9.94%

1 to 4 employees - 38.11%

5 to 9 employees - 14.57%

10 to 19 employees - 9.17%

20 to 99 employees - 9.45%

100 to 499 employees - 4.45%

500 or more employees - 14.31%

These statistics tell us that almost 63% of small businesses in America have fewer than 10 employees.

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We often hear from various sources that only one in ten start-up businesses survive past the first year. New firms are believed to have high closure rates, and these closures are believed to be failures; but two U.S. Census Bureau data sources illustrate that these assumptions may not be justified. The Business Information Tracking Series (BITS) study showed that about half of new employer firms survive beyond four years, and the Characteristics of Business Owners (CBO) showed that about a third of closed businesses were successful at closure. These two studies encompassed about 5.5 million employer firms. The BITS Study showed that 66% of new employers survive two years or more, and 40% survive six years or more.

This same study uncovered some more traits that appear, at least in the report, to be important factors in successful businesses during the start-up period. The report showed that the factors that best explained the likelihood of survival were:

• Being an employer firm (a firm with employees).

• Having start-up capital greater than $50,000.

• Having a college degree.

• Starting a business for personal reasons.

It is believed that starting a business for personal reasons gives the owner increased motivation to keep a business going. So even if the business is barely afloat, better business opportunities are available, or job offers arise, the owner who has started a business for personal reasons probably gains satisfaction from the lifestyle and therefore does what it takes to keep the business going.

Three other factors—previously owning another business, having multiple owners, and being home-based at start-up—also seem to increase survivability. The first two factors indicate more resources, but the third, being home-based at start-up, would seem to signal fewer, not more resources. However, since businesses that are homebased also keep costs low, odds of survival are increased. The home-based business owner probably enjoys the work-from-home lifestyle, so he or she would be more likely to continue a struggling business. Being home-based at start-up was not a factor in the CBO study that looked at businesses that closed but were successful. The factor of being home-based was primarily a factor of success during start-up and not over the long term of the business.

On the negative side, relatively young owners who tended to be in service or retail trades, did not have start-up capital, and were located in urban or suburban areas were more likely to close their businesses. Young owners and individuals in urban and suburban areas may have better job opportunities. Owning a business comes at a higher opportunity cost for them, and they may therefore be more likely to close their businesses. The sum of these variables shows a tendency to have a venture that is small, easy to start, and easy to close.

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Overall, the results of the CBO report tended to support the idea that having “significant start-up funds” and the motivation to continue in the business in the face of adversity increase the odds of survival of the business.

There is an interesting finding in the report concerning funding of the start-up business. Start-up companies with capital of either zero or $50,000 or more have higher rates of success than companies that were somewhere in between. One possible explanation for this is that the start-ups with no capital have lower initial expectations and perform labor-intensive activities, while start-ups with a small amount of capital may not have enough capital to achieve the minimum efficient scale for their chosen industry.

 

An article in Inc. magazine, “Charging Ahead,” states “Americans are often said to be addicted to plastic, and that’s especially true for entrepreneurs. About half of all small businesses finance their formation or expansion with credit cards, according to a survey by the National Small Business Association and Arthur Andersen. The same survey shows that only 6% were financed with an SBA loan, and just 2% received venture capital funding.” I would never recommend financing your business with a credit card, since it’s an expensive source of capital and credit card spending can quickly get away from you.

The retail-trade-related start-ups had the lowest level of success, while services had the highest level of success. The basic reason put forth by the CBO study was that retail start-ups are easier to copy and breed competition. Service firms often have a “secret sauce,” a specialized skill contributed by the owner that is more difficult to duplicate.

The CBO study showed that about half of new businesses remained open for a reasonable time period of 3 years or more and further showed that about a third of all closed businesses closed while successful. Contrary to popular belief, not all closures are failures. Only 33% of new businesses closed under circumstances that owners considered unsuccessful.

The factors leading to business survival were similar to those outlined in a number of other studies. Size and resource indicators such as having employees, a good amount of starting capital, and an educated owner correlated with survival. The bottom line is that potential entrepreneurs, particularly those planning small ventures, have less to fear than what is commonly believed.