Payday for the Small Business Owner

For the small business owner, payday does not always come on Friday. Running a small business for 17 years allowed me to experience this first hand. The biggest misconceptions about small business owners are that they are wealthy. People seem to think that if you own your own company you have money and 'play time'. Nothing could be farther from the truth.

Experience Payday Reality

In any accounting class when you are told to pay the bills there is always plenty of money in the bank account. This is not so in real life. The first thing any small business owner begins to realize is that there is not enough money in the bank for everything, much less his or her own paycheck!

Eventually the business owner begins to choose priorities and unfortunately, the owner's payday is usually at the bottom of the list, especially in a 'bootstrap' business. Management theory says the owner is paid first. This advice is practical in theory but wrong in reality. If the employees are not paid, there is no production. If office overhead expenses are not met, there is no office.

On the Job Training with No Payday

It is helpful to have managerial experience before opening a business. It was also important to have few, if any, personal outstanding debts. Having been self-employed for years before the business, I knew the importance of not having reoccurring bills to pay each month so that when a payday was not available, it was not financially devastating.

Financing Options for Personal Expenses

While building the business, a small owner must sometimes consider money options for paying personal expenses, other than depending on the business to make a paycheck. There are various ways, some of which are not a good option.

• Drawing on savings is the best option if any money is available after the business start-up. Hopefully the money can be put back sooner than later.

• Credit Card use is an option for financing short-term needs like gasoline or groceries. Be careful with cards. Try not to let a debt amount exceed what you expect to be able to pay within 90 days.

• Payday Loans are a choice, but should not be an option taken. Rates are excessive and collection practices are less than pleasing.

• Borrowing from relatives or friends is an option. Remember that 'blood is thicker than water until it comes to money'. Whatever you borrow, arrange for repayment, and then stick to the agreed schedule. Building a small business is difficult enough without creating havoc with family or friends.

• Working a second (or third) job is an option, although time limitations could be a factor. Most small business owners put in many hours building their business and the owner must sleep occasionally. I have witnessed new owners do this and the result was that both business and job suffered.

• Pawnshops are available when strapped for cash. Although pawn loans are usually small, it could pay a household bill if necessary.

If one thinks these measures are extreme, wake up to the reality of the small business owner. Once the business is established, usually after two years, then bank loans are available. Again, be careful as banks tend to overextend the business credit and the debts are almost impossible to repay. A successful 'bootstrap' business can be created with due diligence, hard work, and financial management. The owner will eventually get a payday on Friday.

Sources:
Bank of America

More from this contributor:
Establishing Small Business Credit
Understanding Commercial Loans
Does a Small Business Need a CPA?