Ever thought about opening your own business? Well, think again. If statistics are reliable, most businesses go out of business within their first decade (as high as 60% according to some reports). The turnover of storefronts from Hunt Avenue to Aspen during the past several years is enough to convince. Nevertheless, owning your own business remains strong on the list of American dreams, and just as many new businesses start each day for every one that closes its doors. According to most pundits, however, American small business owners are the salvation of our economy (indeed of our way of life). Getting our nation back on target seems to depend an awful lot on our willingness to swim alone into the treacherous waters of business enterprise. With the way things are going don’t expect our government, or any other entity for that matter, to toss out a flotation device.
The key to survival is understanding how small businesses work and what makes them profitable; the kind of stuff you might have learned earning your MBA or getting tips from your mother’s rich uncle if either opportunity had ever presented themselves. If only there was a how-to book that made it easy.
Finance without Fear by William S. Hettinger and John Dolan-Heitlinger might be that book. Unlike many self-help business gurus the authors don’t pump you up with charismatic hype – the type designed to induce you to attend expensive seminars, purchase DVDs, and order more books. Instead, they provide good, honest information on the nuts and bolts of managing for sustainability and profit. “A business makes money,” they remind us, “by selling goods and services for more than it costs to provide those goods and services.” Okay, duh, you might say. Yet if you doubt the number of business owners who fail in that one simple rule go back to the beginning of this article and re-read. Business owners succeed because they recognize and develop their own expertise, and then use sound financial and business strategies to sustain their success.
A significant chunk of Finance without Fear is devoted to one of the scariest things of all: doing your own finances. Take it easy and breathe. In the authors’ own words, “We’ve made this book as practical and useable as possible.” Not to mention, easy as boiled clams to understand. From cash flow and balance sheets to profit and loss, Hettinger and Dolan-Heitlinger assume that if you’re reading this book, you really don’t know what all those terms mean. Since fathoming finance “is the root of how businesses make money,” the owner or manager who does so, “has a leg up on the competition.”
The final third of the book explains how to evaluate success (or failure) and clarifies many more concepts like operating margin, asset ratio, and return on equity. What these terms mean more concretely for your business often depends on the kind of strategy you adopt in maximizing individual expertise for building competitive advantage within your industry. The author’s identify four key strategies for achieving this. The good news is that you don’t have to be an expert in all of them. “A business can be average, or even below average in the other areas,” as long as it has expertise in one.
Surviving in the small enterprise trade will never be a sailboat ride (remember those statistics). The sharks are still out there. Arming yourself with a few financial tools of the trade when you leap into the water might go a long way towards bettering your chances.