Home Business Starting Your Own Business: Valuable Lessons Learned
Starting Your Own Business: Valuable Lessons Learned

Starting Your Own Business: Valuable Lessons Learned

0

By Dr. William Oliver Hedgepeth
Faculty Member, Transportation and Logistics Management, American Public University

Start a management degree at American Public University.

First, the good news: Starting a business is possible. But it must be done slowly, and you must be willing to take risks.

My business startup, Hedgepeth Transport, LLC, was located in Chester, Virginia. My daughter and I were 50-50 partners. We launched the business in 2006 with one refrigerated truck.

By the time we shut down the business in 2010, we owned nine tractor trailers. We made a lot of money. We lost it all. It is now 2019 and I am still paying bills for the company’s failure. But we learned quite a few valuable business lessons.

Be Honest with Yourself Why You Want to Start a Business

Be honest with yourself and any business partners about why you want to start a business. If you are jealous of a cousin who has a successful business and you want to show him up, walk away from the startup idea. You may not know why he is successful, or even if he really is.

However, if you have a product to make or service to provide and you know there are customers who want that product or service, then maybe you are ready. Maybe.

Why the word of caution? Because you must be sure that your product or service will solve someone’s problem and that there are people who want it and will buy it. You must also be sure that the market is not saturated with similar products or services.

However, if you want to produce and sell something that is brand new and not found in any market, downtown store or shopping mall, you have a lot of research to do. You need to put a lot of time and effort talking to the Small Business Administration (SBA), your competitors, and that friendly banker of yours who may yet turn out to be a friend or foe.

Above all, do not give up your day job! You will not receive a company paycheck for a while, so keep your regular job and do this new venture part-time until you begin to realize a small profit, then go all in.

The Financial Realities of Starting a Business

Expect your company to lose money for the first few years. Why? There will be the expenses that you have to pay for equipment, rent, advertising, supplies, tools, legal fees, registration costs, licenses, fines, insurance, utilities and maintenance of all kinds.

At the end of the year, the federal and state taxes you paid through your regular job might offset the loss you realized in your new company and net you a tax refund. You can put that refund back into the company.

Do not roll all your assets into the company. Financially, the odds are good your business will fail. Taxes can break you fast if you do not pay attention to them.

Don’t cash in your 401(k) retirement plan, thinking that’s all you’ll need to get going. When you estimate the amount of funding you’ll need to start your company, double that amount at least.

Our experience was that we needed triple the initial investment. Why? There are always hidden costs that crop up and need to be paid for, in addition to normal day-to-day expenses.

We bought our first refrigerated truck to meet a contract specification on our first contract with the U.S. Army Commissary. The contract called for an 18-foot-long truck. Ours was 24 feet long, and we had it chopped up. We read the contract, but did not ask the contractor if 24 feet would be permissible.

Later, when we visited the contractor for a renewal for the second year, we learned that the original truck length of 24 feet would have been okay, and the terms of the contract spec could have been modified. That would have saved us $16,000 of unnecessary expenses in cutting the truck length from 24 feet to 18 feet.

Start a management degree at American Public University.

Talk to Your Bank to Make Sure It Can Work with You

Talk to your bank to make sure it can work with your company. Learn the bank’s rules for depositing and withdrawing money.

Some banks have a several days “hold” on deposits. Make sure that your bank will allow you to deposit money and write checks on those funds or use it for debit card payments the same day.

We often ran into this issue with our bank. Many times, our checks for customers and employees bounced for insufficient funds. Even though the money had been deposited, it could not be used for 24 hours.

We continued to use that bank, because it was about 150 feet from our front door. My family had used that bank for over 10 years. And since we did not have an accountant, we relied on a family member to make deposits and write checks. The error was ours. The bank point-of-contact person did tell us they would bend the 24-hour rule for us, as they did for several businesses.

But not everyone got that memo. So, my visits to the bank came every few days. That’s a good reason to search for a friendly bank and let an accountant do the financial work.

Lease or Buy Equipment?

When it comes to deciding whether to buy or lease property or equipment for your business, IRS Publication 535 (2018), Business Expenses, is your friend. Study it. If you use your car or truck for business, you must keep records for those miles used. And monitor mileage like it was gold, because you will have to “divide your expenses based on actual mileage.”

The decision to purchase a truck or vehicle or lease it depends on many business factors. A driving consideration for that decision is based on deductions possible to offset taxes to be paid.

IRS Section 179 defines the rules and the IRS changes the rules each year. Study them to determine what portion of that new truck purchase or lease can be deducted from that year’s income taxes.

The decision to lease or purchase equipment is full of missteps if you are not careful. You may be thinking about land, trucks, furniture, buildings, office or manufacturing machinery, patents for that special product you make, and even franchise rights. Again, IRS Publication 535 is your friend here too.

Paperwork Will Drown You If You’re Not Careful

Starting and running a business requires a lot of paperwork. You should have a lawyer read all documents before you sign on the dotted line.

But more than anything, you will need to pay attention to the local, county, state and federal agencies that regulate business enterprises. This also includes understanding how and when you must file and pay your taxes. Unlike the April 15 deadline for individual IRS filings, businesses must usually file their taxes quarterly.

There is also the legal paperwork to register your company name. That provides you with a federal employment identification number. And there are state licenses and fees that relate to your business of selling food, trucking or selling across state lines.

Besides knowing how to sell your services across state lines, you must know the zoning variances, local ordinances or conditional use permits for your own local area. Among the legal documents you need to fill out is how you plan to run your company — as a corporation, an S corporation or a nonprofit. Our company became a limited liability company (LLC).

Do Not Hire Family Members for Your Business

Never – let’s repeat that – never, ever hire family, even your spouse! Hire a top-notch accountant to keep your books, do your payroll, pay your quarterly taxes, research new state and federal requirements weekly, and pay the bills before he or she pays you one cent!

Also hire the right employees. Never hire someone with the nickname “outlaw.” We hired him. And fired him.

Go for It!

Starting a business can be done; it is done every day. Each business owner gathers a special set of lessons learned.

Talk to several people in different businesses. In the end, if you feel confident that you can handle all the startup tasks, go for it. But go slowly. Think, research and ask questions.

About the Author

Dr. Oliver Hedgepeth is a full-time professor at American Public University (APU). He was program director of three academic programs: Reverse Logistics Management, Transportation and Logistics Management and Government Contracting. He was Chair of the Logistics Department at the University of Alaska Anchorage. Dr. Hedgepeth was the founding Director of the Army’s Artificial Intelligence Center for Logistics from 1985 to 1990, Fort Lee, Virginia.

Comments

comments