If you’re thinking about starting a business, the scenarios below should give you pause. There’s lots to think about, as each of these very real situations (which I personally knew about, having talked with the individuals involved), should show.
Scenario # 1. A very nice lady – probably in her mid 40s – was referred to me by a local city office. She was quite excited about an idea she had for opening a used clothing store & coffee bar, and locating it in a highly visible area of town. She had no start-up money or ability to go for several months with minimal to no income from the business; and she was single with 4 teenagers. The rent was very high and there was almost no nearby parking. I had to advise her that her excitement couldn’t possibly overcome the time and financial expense her dream would cost.
Scenario # 2. A very successful international business consultant wanted to start a non-profit social services organization that would be funded entirely by MaineCare (Maine’s version of Medicaid). His vision necessarily included a program design that the MaineCare regulations specifically stated were not allowed. When this was pointed out, his response was “that’s not the way I interpret the regulations”. Unfortunately, it doesn’t matter how any of us interprets the regs. What matters is how the State of Maine interprets the regs. (To verify my understanding of those regulations – which once upon a time I had extensive experience with – I consulted with someone with intimate knowledge of them, who verified my understanding.)
Scenario # 3. A young woman was extremely talented at creating Americana country tin punch crafts; back in the mid 1980s my shop couldn’t keep them in stock – they flew out the door almost as fast as she brought them in. I kept asking for more and more, and eventually the young woman stopped making them entirely. She didn’t want a “business” where she felt like she was doing assembly line type work; she wanted a hobby where she could just create beautiful things and sell a few here and there.
Scenario # 4. A friend worked for many years in a retail environment she loved. When that type of retailer left the area, she hoped to open a similar store, and asked me to review her business plan and financials. Sadly, the numbers just couldn’t work; the profit margin was too low and the rent & staffing requirements too high… she would have been out of business in a handful of months. More than 20 years later, there still isn’t a similar retailer in the 2nd largest community in Maine… the internet has changed the way we buy certain types of items.
Scenario # 5. An enthusiastic and engaging lady had spent a year developing a treat that was both appealing to dogs, and had a decent shelf life. We all know people will spend stupid amounts of money on their dogs (author raises her hand as one of those individuals!), so the treats – if packaged correctly and marketed well – could be a big seller. We also know that if a dog got sick and/or died after eating one (whether or not the illness was caused by this woman’s product), that the dog’s person might be inclined to sue… so it was critical that the business be incorporated with a good liability insurance policy (these are both important no matter what kind of business one is in). Like the young lady in Scenario # 3, the dog treats lady didn’t want to end up doing production line work if & when the business took off; couple this with the liability insurance issue, and now the business idea didn’t seem as appealing. (One of my dogs loved the treats. The other, not so much.)
Scenario # 6. Doing private duty supports for our seniors can seem like a great idea… Some caregivers don’t incorporate or get business insurance, as they don’t want the hassle, the expense, or to flag themselves to the IRS as being in business. If so, it can be good money under the table, meaning no taxes paid in – it’s all free and clear. However, if something goes awry – perhaps you give a wrong med, or the client falls and breaks a bone on your watch, etc etc… you can lose more than the few hundred dollars you might have paid taxes.
Scenario # 7. You have a very successful cash-based business… whether it’s a miniature golf course, an ice cream shop, or a mom & pop store. You don’t report a lot of the income from the business because – as above – you don’t want to pay taxes on that money. Then, you decide to retire and sell that business which has been making an excellent 25% profit on a million dollars a year in sales. Unfortunately, more than half of those sales are not on the books. And your 25% profit on $1M in sales suddenly looks like 5% on $400,000. Your business is now almost worthless to a potential buyer.
These are just a very few situations that can arise when one is trying to start a business – or even when one actually has a successful business.
Can you see the mistakes made in each scenario?
Categories: Business Practices
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