Nobody starts a business with failure in mind. Yet small business owners by themselves rarely do what needs to be done to avoid failure. Small business failure statistics are all you need to look at to realize most small business owners don’t do the right things when it comes to starting and running their business. Many fail in the first 5 years and even those that are able to survive the first 5 years are likely to fail before they reach 10 years.With each small business failure, there are devastating consequences for the small business owner and his/her family. Most small business owners put every penny they have and can get their hands on into their business not to mention the time, energy, and personal sacrifices they make. The devastation caused by their business failure goes far beyond just them. It extends to their community, their state, and the country. A staggering amount of resources and opportunities are lost due to the vast number of small business failures. Sadly, business failure can be avoided by understanding why it happens and doing the things necessary to elude it.Why It HappensMichael Geber author of The E-Myth Revisited states in the forward of his book what he believes to be the primary reason:”The problem with most failing businesses I’ve encountered is not that their owners don’t know enough about finance, marketing, management, and operations – they don’t, but those things are easy enough to learn – but that they spend their time and energy defending what they think they know.”In other words, Mr. Geber believes small business failure happens because the small business owner thinks they know more than they do about business.During my professional career as a business executive and consultant covering 30+ years and more than 120 consulting engagements with small business owners, I have seen this be true time and time again – the owner is 100% the reason for the struggle and failure of his/her small business. Small business owners like to practice insanity which is defined as continuing to do the same things over and over expecting a different result. There are three bad traits common to small business owners causing their habitual “insanity”:Bad Trait #1 – Think they know what they don’t know.Here’s an example of this from one of my past consulting clients James who is the owner of a residential and commercial contract painting company. James made the following statement when I asked him about his method for pricing work: “My father started this business back in 1956 and taught me everything I needed to know about it. I was 15 years old when I began working here. The way I price is the way my dad taught me. It has always worked and it is the only way it can be done for this business!”At least 5 years before this conversation James’s company began losing profitability and every year the losses had increased. James believed his dad had taught him everything he needed to know and he would never need to know or do anything different. He was wrong yet he practiced insanity by continuing to do things just like his dad taught him somehow thinking he would get a better result. He only got a better result once he changed and learned that there was a different and more effective method.Bad Trait #2 – Suffers from the Field of Dreams Syndrome: The Field of Dreams syndrome is based on the movie by the same name. It is the belief that customers will come just because you have a business.Mike, the owner of a limousine service company, made this statement when I asked about how he marketed and advertised his company’s services: “I am listed in the yellow pages and I rely upon word-of-mouth from past customers. I’ve never had to do anything else to get business. The phone use to ring all of the time. I don’t understand why the phone isn’t ringing like it did. I have the nicest, newest, and cleanest vehicles out there.”Mike believed people would call his company just because it existed and had (in his opinion) superior equipment. Not the case as he was experiencing with a continual decline in sales every month.Bad Trait #3 – Belief that outside forces cause most if not all of their business problems.George owns a residential roofing company. Here is what George said to me during our initial discussion concerning the problems experienced by his business: “I don’t know how you can help me, Carroll. My company does roofs and nobody is getting their roof done. And those that are getting their roof done are hiring the jack-leg running around in his pickup truck charging less than what my material and labor cost. I can’t compete against that guy. I’ll be glad when the economy picks back up so things will be back to normal.”George believed there was nothing he could do to improve the condition of his business. It was all the jack-leg’s fault and what the outside world was doing it to him and his company. George didn’t think there was anything he could do to gain control over any of it. Not true! George in time learned that he was the only one who had the power to change his company’s condition and make it better.There are other “bad traits” held by small business owners but they all are due to the small business owner and his/her erroneous beliefs.How It Can Be AvoidedThe reality of being a small business owner is you are the sole reason for your business’s failure or success! To correct the most common problem of small business you must be willing to do what Michael Jackson’s “Man in the Mirror” song says – stand in front of the mirror and commit to the person you see there to do what is necessary for your business’s success. If you don’t, you, you family, community, state, and country will certainly experience the devastation of your business failure.It does not matter where your small business is in its life cycle you must do the following to ensure your business’s success.1. Bury Your Ego and Be Open Minded.Ego makes you close minded and erects a brick wall that keeps you from receiving and using available and valuable assistance such as advice, knowledge, information, and help. No one is perfect and knows everything there is to know. If you allow your ego to make you believe you “know it all ” and are right when in fact you are not, you will miss out on important opportunities to improve. Removing your ego will allow you to learn and discover what you lack and need for improvement to take place. You will also find people more willing to help and provide you with things that will be of benefit to you.2. Create a Passionate Vision.The majority of small business owners I have worked with have a business which provides them with nothing more than a job. They have from the beginning structured their business to do nothing more than that. Now, they hate their business and are extremely unhappy. Their business is boring, takes all of their time, and provides them with little satisfaction, sense of accomplishment or fulfillment. If you want to be successful and happy you must do something you can be passionate about. This passion needs to be focused on accomplishing something specific not just for you but for others as well. Think about people who have been wildly successful such Steve Jobs, Bill Gates, Oprah, and Dr. Phil. The one thing they have in common is their overpowering drive (i.e. passion) to change the world in a positive way. You can do the same once you create a passionate vision for your business.3. Learn to Learn.Never have I worked with a business owner who had a business without competitors. The typical business owner I work with has problems and their competition is doing better than they are. When asked why they think they aren’t performing as well as their competition they say something like “the competition is much bigger and can afford things I can’t such as newer equipment, more advertising, or better location”. These are all superficial reasons and represent nothing more than excuses by the business owner. The reality is their competition is succeeding because they have figured out how to be more successful. You must learn to do the same. If you don’t believe you can do it on your own then get help and get it now before it is too late.The business world is a highly competitive place. Changes are taking place in all fields and industries worldwide at an increasing the rate of change. To survive and succeed as a business owner you must continue to learn, do things in new and innovative ways, and be passionate about what and how your business serves its customers. If you overcome the bad traits of most small business owners you will be not only have a successful business you will also be happy and enjoy your business more than you ever thought possible.One of the easiest and fastest ways to overcome any bad traits you might have as a small business owner is to get help from a professional who trains small business owners to be successful. You can receive such help in a unique, fun, fast, easy and affordable way by taking my 12 session practical “Master of Business” owner training program.
There is almost always a certain amount of risk involved with starting a small business. According to the Small Business Association (SBA), more then half of new small businesses will close down within five years. Underlying these sobering statistics is the unspoken financial turmoil, ruined credit, strained relationships, and personal stress that can accompany a business failure. Taking steps to minimize the risk inherent in starting up a new company is thus good business practice that, when done correctly, can save a tremendous amount of headache and heartache down the road.To that end, here are five essential tips to follow that will help minimize the risk of starting a small business.1. First define your unique risks. Before you start your business, or as soon as possible, take out a piece of paper (you can do this electronically, but taking time to write it out will make it more real to you) and make a list of all the possible risks of starting a business in order of priority as you see them now. Why is this important? Because it will give you perspective, and it will help to focus on those risk areas that you are already aware of.2. Create strategies to minimize the above risks. Now that you have identified some of the risks involved with starting your venture, develop a plan to help minimize them. Here are a few examples:
To protect your personal assets:Avoid signing personal guarantees on any of your business’ debt- especially if you are running a sole proprietorship or partnership. Also, make sure to consider taking out property and liability insurance policies.
To help ensure that you have enough income to live on: If you are starting a new business chances are you will not be generating enough revenue to adequately pay yourself at the beginning. You also will have to cover startup expenses. To help minimize this risk, you can maintain another income stream on the side (or alternatively, keep your day job and run your new business on the side, until the business is more profitable). You could also wait to start the business until you have saved up enough money to help cover living expenses at the beginning, or you could take out a small loan for this purpose.
To protect your work-life balance: If you are married, make sure that you check in with your spouse and other family members about starting a new business. Running a business typically takes more time and energy than working for an employer, and it can involve odd hours as well. This can put a strain on relationships. If you are afraid of getting too wrapped up in your business, then create some natural separations, such as not running it from your home, and if you do then trying to separate your work area as much as possible from your living quarters. You can also enlist the help of family and friends to keep you from overdoing it in your work schedule.
3. Make sure the business is a good fit for you. What experience, training, skills, or knowledge do you possess that can be used to run this business? Make an effort to enter into an industry and chose a business model that fits you and your unique strengths and qualities. Additionally, if you are lacking in industry or business management know-how, you could enter into a business partnership with others who have it. Moreover, make sure your business idea fits your personality. You can not run a restaurant if you do not like food, and you will have a hard time selling your services if you shy away from social situations. Finally, do you have the available time and commitment needed to start your own business?4. Make sure you know how to run a business. Have you received any formal business management, business financing, or marketing training? If not, is it vital that you learn the basics of owning and operating your own company. There are numerous free business how-to articles, webinars, and tutorials available online, via the SBA or SCORE, for example that can help fill in this information gap. Moreover, it is vital that you get a mentor. Either ask someone you know to help you, hire someone, or consider tapping the resources of groups such as SCORE and and Micro Mentor which provide free business consulting and mentoring services.5. Make sure you have done your research. Countless small businesses disappear into oblivion because their owners fail to invest adequate time and money in market research, product development, and business planning. They are thus out of touch with their target market and are unable to establish a niche nor respond to changes in consumer attitudes. Those who are unsuccessful as small business owners also fail to adequately assess their competition.Bottom line: by following the five tips above, you will be ahead of the game when it comes to minimizing the risk of starting a small business.
Social Security in the United States refers directly to a lesser known federal Old Age, Survivors and Disability Insurance program or OASDI. The program was originally rolled out in the 1930’s in an attempt to limit what were seen as dangers to the American way of life such as increased life expectancy, poverty, and fatherless children. So the Social Security Act, signed in 1935, created social insurance programs to provide benefits to retirees, the unemployed, and as well as a lump sum benefit to the family at death. Many amendments have been made since the original Social Security Act of 1935. Most importantly; Medicare was added in 1965. The Social Security Act of 1965 also recognized for the first time that divorce was becoming a common cause for the end of marriages and added divorcees to the beneficiary list.The largest component of benefits is retirement income. Throughout a person’s working life the Social Security Administration keeps track of income and taxpayers fund the program via payroll taxes also known as FICA (Federal Insurance Contributions Act) taxes. The amount of the monthly benefit to which the worker is entitled depends upon the earnings record and upon the age at which the retiree chooses to begin receiving benefits. FICA taxes are 7.65% for employees and 15.3% for self employed individuals. The amount of taxes paid is not directly used to calculate an individual’s benefit. The rate is broken down into two parts: Social Security and Medicare. The portion is 6.2% and is paid on a maximum of $106,800 of income for 2009. The income maximum is also known as a wage base. The Medicare portion is 1.45% on all earnings. These rates are set by law and haven’t changed since 1990. The wage base for Social Security is indexed each year for inflation and Medicare has maintained an unlimited base since 1993.Self employed person’s pay double the amount of tax because the employer is responsible for the other half of an employee’s liability. A self employed individual is both employer and employee. There are wages not subject to FICA taxes including some state and local government employees who participate in alternative programs such as CalSTRS and CalPERS. Each state and local government unit with a pension plan decides whether to elect Social Security and Medicare coverage. Civilian federal employees are covered by Medicare but usually not Social Security.The earliest age at which reduced benefits are payable is 62. The age at which full retirement benefits are available is dependent upon the taxpayers age. An increase of regular retirement age was enacted to reduce the amount of benefits payable. For those currently over age 70 the normal age was 65. Anyone born after will fall somewhere on increasing scale which climbs incrementally to age 67 depending upon birth date. Anyone born after 1960 must reach age 67 for normal retirement benefits. Delaying receipt of benefits will increase a taxpayer’s benefit until age 70.Benefits are paid from taxes collected from other tax-payers. This makes it a pay as you go system and will eventually be directly responsible for the downfall of the program. At least as we know it today. In 2009, nearly 51 million Americans will receive $650 billion in Social Security Benefits. Economists project that payroll taxes will no longer be sufficient to fund benefits somewhere in the next 10 to 15 years. Once we can’t cover the expense from cash flow, the program will begin drawing down the trust fund it has accumulated during times of surplus taxes. We can only speculate what happens when the trust fund runs out. This is the cause for concern often discussed in the news and other media. The fix for this problem is the subject of much political posturing including that witnessed in President Bush’s 2005 State of the Union address.The first reported Social Security payment was to Ernest Ackerman, who retired only one day after Social Security began. Five cents were withheld from his pay during that period, and he received a lump-sum payout of seventeen cents from Social Security. This might give you an indication of how Social Security handles business.A current spouse is eligible to receive survivor benefits equal to 100% of the deceased worker’s benefit if they have reached normal retirement age.Divorced spouses are eligible for benefits equal to one half of the worker’s benefit if they were married for 10 years have not remarried and are at least 62 years old. This is called a derivative benefit. A spousal applicant must wait until the worker has reached retirement age, 62, in order to apply for benefits. The worker is not required to have applied for benefits in order for the ex-spouse to apply for spousal benefits. They are not entitled to increases for benefits taken after normal retirement age. If a worker has died and the ex-spouse has reached full retirement age they can receive 100% of the worker’s benefit as survivor benefits.If an applicant is between age 62 and their normal retirement age; the application for benefits will be based on the applicant’s earnings record. If one half of an ex-spouse’s benefit is greater than the applicant’s benefit on their own record; the applicant can choose to take whichever is greater. If you wait until your normal retirement age and file for spousal benefits you can continue to accrue benefits and enhancements for delaying your own retirement up until your age 70.An ex-spouse’s receipt of derivative benefits on the worker’s record does not reduce the worker’s benefits. It is even possible for more than one ex-spouse to collect on the worker’s derivative benefits. This could lead to as much as 500% of the original benefit being claimed by the five ex-spouses.Windfall Elimination Provision and Government Pension Offset ProvisionFor those worker’s who are covered by a pension based on their own earnings not covered by Social Security a different method of computing benefits applies. The alternative method is called the Windfall Elimination Provision (WEP) and was created to close a loophole that enabled worker’s who earned benefits in covered and non-covered employment from being labeled a low-earning worker and receiving a disproportionately large Social Security benefit.The formula is weighted in favor of low earners because such a person is more dependent on Social Security. If the WEP is applicable it reduces a worker’s Social Security benefit by 50% of the worker’s pension benefit up to a maximum of $380.50 in 2010.If you earned a pension based on work where you did not pay Social Security taxes, your Social Security spousal or derivative benefits may be reduced. The Government Pension Offset Provision (GPO) was enacted to treat retired government employees who had not contributed to Social Security similarly to retirees who had. The GPO reduces derivative benefits by two-thirds of other government pensions received. This can reduce Social Security benefits to zero.The truly important ramification of the WEP and GPO on Social Security retirement benefits comes into play during divorce proceedings. Federal Law makes Social Security benefits the separate property of the party that earned them.They are not assignable or divisible in a family law court and not considered an asset of the community in California.Government and other pensions, on the other hand, are considered community property in the state of California to the extent benefits were earned during marriage. Derivative benefits under the Social Security program for ex-spouses would seem, at first glance to remedy the problem. The non-worker spouse get’s half of the worker’s retirement benefit via derivative benefit payments. Getting to the true ramifications of the WEP and GPO during divorce proceedings requires sound financial planning.Consider the following couple.- Jim was a private employee covered by the Social Security system. He retired at age 66 with a monthly Social Security benefit of $2,014.
– Barbara has been employed as a teacher for 30 years covered by the California State Teacher’s Retirement System. She retired this year at age 65 with 30 years of service under CalSTRS and a monthly benefit of $5,520 without having paid a single penny into Social Security.
– Barbara’s CalSTRS benefits are considered community property in California having been earned entirely during marriage.
– Jim and Barbara are divorcing and her CalSTRS pension will be divided equally with each party receiving $2,760.
– Jim will continue to receive his $2,014 per month of Social Security.
– Barbara will be entitled to a derivative Social Security benefit equal to one half of Jim’s benefit, $1,007, or the benefit she has earned on her own record. Barbara has not earned a benefit on her own record so she will choose to receive the derivative benefit on Jim’s record.
– The Government Pension Offset will reduce Barbara’s Social Security benefits by two thirds of her $2,760 pension benefit, or $1,839.82. The GPO leaves Barbara with $0 from the Social Security derivative benefit.
– Barbara will receive a total of $2,760 from her CalSTRS Pension and $0 from Jim’s Social Security derivative benefit.
– Jim’s Social Security benefits will not be affected by the GPO or WEP.
– Jim will receive $2,760 from Barbara’s CalSTRS benefit and $2,014 from his Social Security retirement benefits for a total of $4,776.What looks to the lay person to be an appropriately arranged method for completing an equal division of assets leads to a grossly in-equitable settlement that provides Jim with $4,776 per month and Barbara with $2,760 per month.The California Federation of Teachers sponsored a rally on November 7th to urge Congress to pass SR 484 in the Senate and HR 235 in the House of Representatives to repeal the Government Pension Offset and Windfall Elimination Provision. This has been attempted numerous times before without success. Social Security is a monster of finances, public policy and entitlement. Making changes is not easy or quick.Consulting with a qualified financial planner experienced in the nuances of divorce finances and retaining their services as a neutral expert or advisor will help divorcing individuals work with and around in-equities caused by the system.