We review the best small business and investing books
"What's your reward for whipping your finances into shape and staying the course? Although it's true that money can't buy happiness, managing your personal finances efficiently can open up your future life options, such as switching into a lower-paying but more fulfilling career, starting your own business, or perhaps working part time at a home-based business when you have kids so you can be an involved parent. Work at achieving financial success, and then be sure to make the most of it." Eric Tyson and Jim Schell, Small Business For DummiesTM
Small Business For DummiesTM
By Eric Tyson and Jim Schell
Small Business For DummiesTM by Eric Tyson and Jim Schell is a great book to introduce people to the world of small business. The book is filled with solid business advice and information which runs the gamut from managing employees to controlling inventory to building customer relationships. This is one of the better "dummies" books I've read.
Small Business For DummiesTM starts with a short chapter asking, "Is Small Business For You?" The authors discuss reasons to start a small business and reasons to remain an employee working for someone else. There is a short aptitude test to see if you have the characteristics to be successful as an entrepreneur.
Tyson and Schell define a small-business owner as a person who owns a business with 100 or fewer employees. To reduce the risk of starting a business, the authors suggest you consider starting a part-time business.
I especially like how Small Business For DummiesTM addresses the issue of risk in starting a small business. When an entrepreneur starts a larger company, the founder might collect $150,000 a year in salary, have a great severance package, and even if the company fails, there probably won't be any personal stigma for the founder. On the other hand, small business failure is much more painful, carrying not only the stigma of personal failure, but also dire personal financial consequences.
The second Chapter, Laying Your Personal Financial Foundation, gives new entrepreneurs a quick course in personal finance, Tyson's specialty. Some entrepreneurs fail to get their personal finances into shape before launching their business.
Tyson and Schell suggest building up your cash reserves (or a "war chest") of about three to six months of living expenses before starting your company. The authors also discuss the importance of disability, health, and term life insurance in protecting yourself and your family.
Chapter 3, Finding Your Niche, dispels the common myth that your "niche" is the key to success. Tyson and Schell write: "[T]he niche or idea won't ultimately make or break your business; the day-to-day running of the business itself is what ultimately determines success- or failure. Stated another way, you show us a crackerjack business person, and we'll show you someone who can get rich in the cookie business whether or not he or she has the foggiest idea how to bake the darn things."
Small Business For DummiesTM gives us the valuable tip that trying to be a low-cost player is likely to lead to failure. Small businesses can't compete on price. They must compete on quality and service.
Tyson and Schell also unveil your most valuable business asset- you. After telling us a short story about Sam Walton (the founder of Wal-Mart) borrowing $1,800 to buy an ice cream machine, Tyson and Schell write: "And so it will be with the rest of us who follow in Sam Walton's footsteps- we alone will either make our company, or we will break it. Sure, the niche will be important but we will select it. And certainly our employees will be important, but we will choose the people we hire (and the people we fire). And, of course, our products (or services) will be important, but we will have the final word in defining them. Everything that happens within our business will have our own personal stamp on it. Nothing will be outside of our grasp."
One option to creating a company from scratch is buying an existing small business. Small Business For DummiesTM devotes two excellent chapters to buying a business. Tyson and Schell tell us the story of Larry "the stupid grim reaper" who acquired a new business. Not understanding the company's current working culture and the real skills needed by the employees, Larry made drastic job cuts and employee replacements. Doing so almost destroyed the business. The lesson is don't assume you can enter an existing business and immediately make great improvements. Take time to learn the ropes and understand the current operations before trying to drastically change them.
The book has an excellent discussion of due diligence and evaluating a business to buy. Some of the suggestions include:
~ Examine the business's tax returns. While many small business owners trying to sell a business will try to overstate earnings and the potential of the business to a potential buyer, the owner will likely try to minimize the profits reported to the IRS to save money in income taxes.
~ Talk to key customers, employees, and other companies in the industry. Try to get a feel for the level of ethics and reputation of the company you consider buying. People of low ethics are more likely to try to sell you a bad business for an inflated price and not care about your future success or happiness with the business.
~ Consider hiring a business appraiser. Tyson and Schell recommend seeking a business appraiser through The Institute of Business Appraisers. They recommend publications, such as Bizcomps and Financial Studies of the Small Business (Financial Research Associates, FRA), so that you have information about the prices for which comparable businesses are selling.
~ Get proof showing that all business taxes are fully paid to date. And, make sure that the seller is liable for any existing, undisclosed liabilities.
~ Don't buy a Florida business to escape Minnesota winters (or a Minnesota business to escape Florida alligators). Don't buy a business for the wrong reasons.
Tyson and Schell recommend hiring a tax attorney and a business attorney to help you buy your business. Of course, many people feel they don't need professional counsel when buying a business. This is almost always a serious mistake.
Many people can't afford to purchase an existing business. How do the cash starved build a company? Bootstrap. Small Business For DummiesTM points out that one Inc. Magazine survey showed that about 79% of the fast-growing Inc. 500 companies relied upon the founder's personal savings and 16% relied upon financing from family members for funding. In contrast, only 7% received bank loans, 5% received angel investments, and 3% received venture capital.
Tyson and Schell write: "The fact that bootstrapping is so pervasive and works so well makes sense if you think about it. First, what better way to instill discipline and to make things work efficiently that to have a limited supply of funds? Second, because you care deeply about risking your own money or that of family or friends, you have a powerful incentive to work hard and smart at making your business succeed. ... Bootstrapping is the unchallenged king of start-up financing."
Small Business For DummiesTM also has outstanding chapters about hiring superstar employees, about marketing, publicity, and networking. Tyson and Schell write, "Networking is the process of connecting with people in order to make good things happen."
The book also highlights the power of word-of-mouth and referrals. Tyson and Schell write, "Referrals are just another reason of many why you should do a top-notch job providing your product or service, as well as following up with more service. If you take care of your customers in the early stages of your business's life, the referrals from those satisfied customers should take care of you and your business in the future."
Small Business For DummiesTM by Eric Tyson and Jim Schell is worth reading. It is also available at many public libraries.