Numbers-Pro.com

04/01/2024

It's been a while, I got caught up in it…

… but I wanted to tell you about my boy and the experience he had starting a business. I mean we did suggest that given business failure rates someone would have to be crazy to start one, right? But people continue to step out and start businesses despite the failure rate being high and relatively constant over the past 10 to 15 years. Why?

There are really 2 parts to this: why do so many people continue starting businesses knowing the failure rate is so high, but more importantly, why are business failure rates so high? In an earlier post we alluded to the reasons why people start businesses – a desire to call the shots, to not have to answer to anyone, to build something of value, among other reasons. Aside from noting the really high rate of business failures, we haven’t say much about why businesses fail, and at such an alarming rate.

Years ago a friend with an entrepreneurial bent got the idea of making some money by sponsoring a party in Philly’s Town Hall. According to him everyone was doing it and promoters like Jackie Beauville and DJ’s like Plain Wayne were making a killing. His idea was to sponsor – promote – a party, hire Plain Wayne to be the DJ, advertise on DAS and watch ticket sales explode.

The consummate entrepreneur, he approached me and another high school friend for funding. He got us to meet him at Town Hall, let us know what the hall rental rate would be, told us we could retain the services of the DJ for under $1,000, and then told us to look around at the 2 rooms we would be renting and see the more than 1,000 people the rooms could hold partying and having a good time.

With the going rate of a ticket at $15, he told us we’d gross at least $13,000 and after costs, net $7,000. Not bad for one night. My other friend and I bought the dream and financed the venture.

Ticket sales never caught on and last minute radio ads did nothing to boost sales at the door. By the end of that dreadful night, the gross of at least $13,000 turned out to be $900, and the after costs net of $7,000 turned out be a loss of more than $5,000. The financiers lost their shirts, the entrepreneur walked away unscathed financially.

The venture was a complete failure and it took a couple years before I financed/promoted another party. This really hurt financially. The day after counting my losses I looked up the price of a stock I considered investing in a week before my friend, the entrepreneur, approached me with his investment opportunity. Then the stock was selling for $5 a share, now it was selling for $15 a share. So not only did I lose the investment I made in the party promotion concept, I lost $10 a share on a stock I didn’t buy because I invested in the party concept. It’s called an opportunity cost. I went back to bed and cried….

They say experience is the best teacher, and you can bet this experience taught me a lot.

Let me hear you say ‘due diligence’.

02/13/2024

Another example of a financial "guru" giving misguided advice. If you're about creating wealth, financial decisions have to be based on the impact they have on your wealth.

Under certain circumstances, there are benefits to a 15-year mortgage, but if you can't afford a 15-year mortgage, a 30-year may make sense. There are no absolutes, there are a lot of gray areas.

Generally, if the return on an asset exceeds the cost of financing it, it is a worthwhile investment.

Dave Ramsey delivered a definitive stance on the debate between 30-year and 15-year mortgages. Responding to an inquiry from Julie about the potential benefits of a 30-year mortgage over a 15-year option, Ramsey’s response was unequivocal: “Let's see, how should I put this? No! If you can't affo...

01/30/2024

Let's not get it twisted...

Small business failure rates are high, and, based on the numbers, more than half will fail in 10 years. And at what costs?

Based on interviews with small business owners who had to shut their businesses down, most incurred huge financial costs. For most, it was the lost investment in the business and the opportunity cost of the lost wages/salaries they could have earned working for someone else. For some of these, it was also the interest and penalties of unpaid taxes and debt obligations secured by a personal guarantee. All in, the financial costs can be devastating.

But beyond the financial costs of a failing business are the personal costs. In many cases, these can be even more painful to endure. There's no worse complement to a failing business than a failing marriage, caused by the stresses and strains of the business. And then there are the costs to family and personal relationships. Children grow up quickly, and time spent trying to preserve a failing business is time not spent at dance recitals or soccer games, or helping with homework, or teaching one how to throw the perfect sparrow.

And life goes on, so you lose touch with many of your friends as they do them and you do your business. The life of the entrepre-warrior can be lonely.

But with all this people continue to start businesses. And since these really high rates of business failure endure, these people starting these businesses, 70% of which will fail in 10 years, have not learned the lesson. What's more, it makes one wonder whether they even ask the question 'why do so many businesses fail?'

You wanna know why?

Let me tell you about my man....

01/19/2024

Let's be real...

Starting a business is risky, extremely risky. Just Google "small business failure rates" to learn that by some estimates 20% of small businesses fail within 1 year, 50% within 5 years, and more than 70% within 10 years.

And it has to be a losing proposition since most rational people wouldn't shutter a business that's making money. What's more, even if the owner is taking let's say $60,000 out of the business annually, might they make more money flipping burgers?

Considering the effort required to make a go of a business, the owner is likely putting in 10 hours a day, or more, at least 6 days a week. That $60,000 a year the owner is taking out of the business works out to $19.23 an hour. Just above the minimum wage in some places.

This being said, should we take the temperature of anyone telling us they're planning to start a business? I mean it's a sure sign that they're throwing their invested capital away, right?

But, if we're going to be real, we have to admit there are some intangibles to owning a business that can seduce one into drinking the kool-aid.

I remember when I started my consulting practice after being let go from a position I held at a black bank for something my boss did. I had had it with white corporate America and, after this experience, had it with black corporate America.

I was young and living the life in New York City, so I had $130 in the bank and rent was due in about 10 days. Fortunately, a few clients from the bank needed my services so retained me to provide CFO services to them.

With an understanding landlord, I was able to build my practice to the point where I could cover my basic living expenses within 3 months. I wasn't eating out or hanging in the clubs, unless one of my boys' hooked me up, but, wow, was I happy. It's hard to explain, but the drop in my standard of living - not eating out or hanging in clubs ( yeah, I know, but at 28 in New York City, 70 West after work on Friday, and Savage Saturday night was to die for) - was more than offset by the reduction in work related stresses.

Just being able to do things my way and not having to answer to someone made work life so much easier. But looking back, if I were to be brutally honest I'd have to say the financial costs of the "working for myself solitude" was not worth it.

The cost to experience the intangibles of starting a business when considered in light of the fact that you will probably fail, is not worth it.

But yo, wait till I share with you what's next!

01/06/2024

PEOPLE SAY STARTING A BUSINESS IS RISKY, SO THEY DON'T START ONE.🤔
BUT SO IS CROSSING A STREET, AND THEY CROSS STREETS.

01/06/2024

The thing about small business failure isn't that 50% of them fail within 5 years. It's the cause of their failure:

INEXPERIENCE

01/05/2024

With failure rates so high, it's too risky to start a business, right?

WRONG!!!

01/05/2024

It's deep - an estimated 50% of small businesses fail within 5 years, and 70% within 10 years.
Go Figure...

01/05/2024

A well-crafted business plan is essential for the success of startups and small businesses. Serving as a detailed guide that outlines the company's goals, strategies, and plans for achieving them, a good business plan outlines a deep understanding of the market, provides a comprehensive guide for business growth, and can be used to secure funding. While a strong business plan can significantly improve the chances of success, its effectiveness ultimately depends on how well it is executed.

12/15/2023

In a previous life, I wrote business plans for a living. And it just seemed to happen. Out of grad school, I worked in the asset-based lending group at a major money center bank at a time when LBOs were all the rage. I spent time as a bond ratings analyst at Standard & Poor's when junk was being used to finance LBOs. I was a commercial lender at a Harlem-based bank founded by Jackie Robinson and looked at a lot of really small business deals. And I also managed a Newark-based multi-bank CDC that funded startup businesses.

I read a lot of business plans in my day. So at some point, I decided to start a consulting practice whose services included writing business plans. And based on my experience I developed a process of taking the client through the 'Steps to starting a successful business' to prepare us for actually writing the business plan.

Those steps follow below. The results derived from this process determine whether it is worth writing a business plan or looking for the next idea

12/15/2023

Dedicated to all of the entrepre-warriors who get up day in and day out with the sole purpose of building their business. And in doing so, validate the very definition of success:

"... the ability to go from failure to failure without losing your confidence."

"Business by the People!"