I remember after my first year of full-time business, when my brother, a C.P.A, almost rhetorically asked, "Is everything just going back into the company?"
It shocked me a little because that's exactly what was happening, but also because, for the first time, I felt like maybe I was doing it right. I asked anyhow, "Yes. Is that normal?" He proceeded to tell me that it was very normal and just something that a business owner has to do in order to grow.
This, I believe, is something that many don't understand unless they've started or run a business. I know I didn't. Based on what I used to believe, here's what I would think my assistant assumes.
We are finishing up a nursery and my assistant knows that the final bill is $16,000. She knows she made $800 for the hours she worked so she quickly tries to add up how much I made from the job. She adds the furniture and accessories at $8500. Outside labor at about $1500. "That means Kim is taking home $5200!!"
I, too, used to think the boss took the remainder "home" to their personal checking. What I didn't put much thought into were the daily expenses that must be subtracted as well. The boss is really taking the money straight to the business account in order to pay for the phone, rent, electricity, insurance, taxes, payroll taxes, legal, accounting, other salaries, advertising, more products and office supplies.
Sometimes, due to unforseen circumstances, the boss pays out all who needs to be paid only to discover there's not enough to pay everyone. Guess what happens then. Either the boss puts the remainder on credit or pulls from his/her personal account.
If there is enough left over, he/she may subtract his/her own pay. Often, what happens in my case, is that I choose to "invest" my "pay' right back into the business in the form of new products and/or marketing. I'm fortunate in that we have another income (my husband's), but I also set aside money before I started the business. You'll read in all the books "pay yourself first!" I would totally agree with this statement. However, as I stated, I've found this difficult to do in my own business. (This is where I'm going to refer you to the disclaimer on every post of this blog. I'm only sharing my experiences here in the hopes that it keeps someone else from making the same mistakes. I'm not necessarily giving direct advice.)
My Dad, who does get paid to give this kind of advice, has told me time and again, "when you set your prices, you must consider all expenses of the company now and all expenses that will exist in future." This means, I may not have a storefront/office now, but I need to charge as though I do. This prevents a business from having to quadruple their rate when they grow into that store front. It's easier to lower prices, than to raise them.
The problem I ran into in building a new concept is that I was trying to build the value of a brand new service, while also selling the service. In other words, I cut some pretty dirty deals just to prove that the service has value, but also build my portfolio. Imagine the very first wedding planner. Before wedding planners a person would have said, "Why would I pay someone to arrange vendors for me when I can just do it myself?" I faced the same criticism and had to prove it wrong.
In a way, I cut my nose off of to spite my face, but I will say I was vaguely aware of what I was doing. To combat this pricing issue, I made clear that anyone who used my service in the first two years would get a discounted rate. Prices after that would go up to where they needed to be. The clients understood this and, as a result, shared invaluable feedback with me. To this day, I still get great advice from the client's who started with me. It feels as though they truly are a part of my company and I consider them part of the Peekaboo family.
Two years may seem like a long time, but what you have to remember is the gestation (not a pun!) period for each of my clients. We accept clients after 14 weeks of pregnancy, so I can spend almost six months with a client up to their due date and then even more time if they require our services after baby.
I don't regret the money or time that I have invested and continue to invest back into the company. I chalk it up as R&D. It's been frustrating because the start has been slower but, now that other baby planners are surfacing, I can see how valuable that "R&D" time turned out to be. Peekaboo may look smaller now, but I can tell that our foundation is firmer so our staying power should be longer.
My husband keeps telling me what a genius for spending all of the time/money in "research." This makes me laugh. It's kind of like telling the guy who just ran out into traffic that he's a genius because he only got hit by a motorcycle. I have a business plan and I duck and weave with the punches, but everything feels accidental. I don't much feel like a genius. I just feel lucky...so far.
Please note the thoughts and opinions expressed in this blog are based on the experiences of the author. The information contained in this blog is in no way meant to take the place of professional advice. It is only meant as insight into the world of a small business owner. As always, thank you for visiting and feel free to share your own experiences or concerns by leaving a comment.