business, money

Working on your business vs working in your business

In Australia over 97% businesses are small to medium businesses. Roughly half go out of business in the first five years!

There is little reason to expect the world wide trends to be any different.

Its easy to start a business. All it takes is an idea, something to annoy you in your existing job, a market downturn, a moment of entrepreneurial valour, a touch of envy when you see someone making a killing at something.

Why dont most businesses make it?

One reason is that business owners lose sight of the importance of working ON your business and not in it.

Working on your business, means just that, spending time working on developing your staff, systems, business plan, budget, products, doing your own accounts, sorting out legal issues, vision casting, developing a marketing plan, and so on. It is strengthening the foundation upon which your business will sit.

Working in your business means doing work for your clients that generates income. It means attending to short term and urgent matters.

Its easy to talk about working on your business rather than in it. A lot easier than actually doing it!

Imagine you start a business as a lawyer, and you have experience. Since you know what you are doing, you can service clients and provide excellent services without much thought. Now imagine you are so busy you need to hire your first employee – a junior since that’s all you can afford. How do you ensure that the work they provide to your clients is up to your standard? What systems and procedures for work have you implemented? What about review procedures? It is at this point that many business owners, have an entrepreneurial seizure. They decide that every employee is an idiot, that they are the only person who knows how to do anything, and many decide to get small again, to have no more staff than required, and to do it all themselves.

That my friends, is what you call a job, and is very different from what I would call a business. After all, the risk of starting your own business is that you might find yourself working for an even bigger idiot than the one you thought you were working for before! and this time your stuck together!

When starting a business you should be honest with yourself about whether you are starting a business or simply starting a job where you are self employed but have no intention of building an organisation that will service customers and generate income primarily through employees and a system of doing business that you oversee.

The fact is that the fruits of business for people who have a self employed job are small. You will most likely find someone out there who also wants to buy a job if you want to sell, but the second you stop working you stop earning, and rather than increasing your freedom, you will probably end up increasing your working hours.

The fruits for people who build a successful business are abundant.

1) Selling the business

If you can build a business that profitably employs a number of people, you will most likely be able to fetch a very attractive sale price for the business.

At the moment in Australia, if you meet certain criteria, you can potentially sell your business and receive 75% of the sale amount tax free.

2) Freedom from the business

If you can implement systems and procedures for your employees to follow you will move towards a position where the business can run with out you and you will be able to enjoy moments of freedom from the business – such as taking a holiday and not having to sort out problems while you are away.

3) Income

Its better to make 15% of the income of 10 staff, than 100% of the income of yourself. Further, once the business is setup, you should earn income even if you decide not to do any client work yourself.

4) Influence and a chance to do good

There is a fantastic opportunity for business owners to improve the world. They can create workplaces which have sustainable work/life balance and allow people to raise their families and have a life outside of work. They can share their profits with their employees. They can be generous with charities and causes they are passionate about. They can wield influence and apply their skills to governments, schools, churches, media outlets etc. They can improve the lives of their customers and shareholders.

What you need to do to work on your business

1) Time

Ensure that you take time out specifically to work on your business. If you paid yourself $300 per hour for working on your business, and only $10 per hour for working in your business, how would that work out for you compared to your current drawings?

2) Systems

You need to understand clearly how your business makes money. Once you know this, you need to systemise your processes. Your business will only be as good as your systems. Do you go back and eat again at a cafe that continually produces inconsistent food? I don’t.

3) Money

This is where most people make a fundamental mistake. Most business owners are completely ripping their company off when you compare what they actually do in their business to their salary. You are going to need to keep your hands out of the till and invest in your business, and this will require a sacrifice.

4) People

People can be difficult. There are some keys you must understand for working on people in your business. Firstly, some people will not be right for your business no matter what you do. Secondly, when you hire someone, it is going to cost you money before they make you money. Third, people make mistakes. The better the systems and procedures you surround them with the higher quality the outcome you should expect.

You need to spend time developing, managing and motivating your people, as part of working on your business.

There is an important distinction between delegating work to employees and abdicating. The difference is selective supervision. In the early stages of employment employees should be carefully supervised, with their freedom being extended over time as you are confident that they know what they are doing and can follow your procedures.

5) Advisers

Even advisers need advisers. I am not aware of successful entrepreneurs who have built huge successful businesses without a good team of advisers behind them. In my own experience, I get some of my best ideas for the business when paying an advisor to sit opposite to me. I suspect it has something to do with the fact that at that point of time, by having them there, I am being forced to work on my business, and not in it.

Its time to start working on your business, not working in your business.