I work with a lot of smaller retailers – start-ups and indies who are just getting going in this crazy industry we’ve all chosen. Many of them get this one question wrong.
Did you start a business or just create a job?
Most people think they are starting a business, but in reality all they have done is create a job for themselves, often a low-paying job at that. Then when they go to sell the business, they can’t find any buyers.
Here are three questions you need to ask yourself to see whether your retail shop is truly a business or just a job.
Could the business run without you? More specifically, could you hire someone to do your job, or is the whole reason the business exists because you exist?
Do people come to your business because of what you offer or what your business offers? If the vast majority come because of you, you might have a job, not a business.
Do you pay yourself a salary? If you don’t then it isn’t even a job, it’s a hobby. If you do pay yourself a salary, is it a good one? Is it enough to hire someone else to do that job? If you said no, then you might have a job, not a business.
Do you show a profit? If you’re paying yourself a salary, that is a good thing. It means that you could potentially hire someone else to do that job, while you reap the profits – assuming there are some profits. Some owners will make the correct move of paying themselves a salary, but do so at the expense of showing a profit. Some will keep profits low on purpose to avoid taxes. There might be a number of reasons for not showing a profit. Amazon doesn’t seem to need to show a profit. As long as the cash keeps flowing they (and you) can usually keep doing your job. But an indie retailer without profits probably won’t be able to sustain that cash flow for too long. You and I don’t have the deep pocket investors Amazon has. If you’re paying yourself a salary in lieu of showing a profit, you might have a job, not a business.
Not that there is anything wrong with having a job, not a business. You can make a healthy living for many years that way. You might like the job of being boss (and you might be really good at it). You might like the salary you pay yourself for being boss in lieu of having your business show a profit. Those are good and valid points for you to keep doing what you do.
The only downside will be the exit strategy. Once you decide you no longer want your job, if you didn’t first turn it into a business, you’re going to have a hard time finding anyone who wants to buy it. No one “buys” jobs. They buy businesses. Without a business, all you have left to sell are your assets.
Neither concept is wrong, but not knowing the difference can be costly down the road.
-Phil Wrzesinski
www.PhilsForum.com
PS If you want to turn your job into a business, you need to think about three things.
- Could I hire and train someone to do my job?
- Do I pay well enough to hire someone competent to do my job?
- Is there enough profit and/or growth potential to keep the business making money?