The Most Common Mistake Business Owners Make
The most successful business owners spend time working on rather than in the business.
Michael Gerber’s analysis of the common business owner is bang on.
More than 30 years after the release of his classic book, The E Myth Revisited, many of the key points Gerber makes about entrepreneurial myths still apply to the 21st century business owner. For those who aren't familiar with the "E-Myth" (or Entrepreneurial Myth), it's the idea that businesses aren't actually started by people with tangible business skills; instead, most businesses are started by "technicians" who don't know anything about running a business. Because of this, Gerber mentions that business owners spend too much time working in their business and not on their business.
Initially, you may not think there’s a difference, but there’s a clear distinction between the two. The most successful business owners are those who spend more time working on their business. It’s a gentle reminder to even the most successful business owner that sometimes you need to take a step back and look at the bigger picture.
When You’re Working in the Business…
…You’re often heavily involved in the day-to-day operations, either completing tasks at hand or managing employees. You might even be part of the front-line staff. Business owners sometimes get sucked into this for the following reasons:
- “This is what’s creating the income.”
- “The clients prefer to deal with me directly.”
- “I personally don’t have time to handle any of the other things.”
- “I really have to be there to oversee the staff and the operations, otherwise things just don’t function as well.”
The truth is that when you’re working in the business, you’re not a true business owner and your company probably isn’t structured properly. This is a common problem in many small businesses where the owner is solely responsible for the day-to-day operations.
Unfortunately for business owners of this mold, this isn’t the most effective use of their time. Inefficiencies and productivity losses translate into lost revenue — a direct hit to your bottom line. This error is common among first-time business owners, and it’s part of the reason why so many start-ups in Canada fail within a year.
When You’re Working on the Business…
…You’re a true entrepreneur, spending your time applying your tangible business skills in order to achieve growth. The remedial day-to-day tasks aren’t on your mind. Instead, you’re sourcing opportunities for growth and development while keeping the end goal — a solid exit strategy — in mind. You know the purpose of the business and are focused on hiring the right people, tapping into resources and finding ways to tighten up company operations.
When you’re effectively working on the business:
- You learn how to naturally delegate, freeing up your time so you can focus on what’s really important.
- Your company grows and develops that much quicker.
- You have a plan and keep it in the forefront of your mind at all times.
- Your company is much more viable and attractive to potential buyers when it comes time to sell.
Assembling an Advisory Team
When you’re working on your business, you already have your end goal in mind. It’s not something you plan when you want to retire, but years before you decide to call it quits.
To help you get there, you need to assemble a team of professionals who can act as allies and advisors. So, who’s part of this team? Your accountant, lawyer and wealth manager likely make up your stable coaches, working with you to reach your end goal. When everyone involved communicates properly and works together, they are invaluable to you. Often the Wealth Manager or Accountant takes the lead role, acting as the quarterback so to speak. Together they can help you navigate your way through the muddy waters of business ownership, growth, development and the eventual sale. By working closely with them, they can help you relieve stress, save money and realize a solid return on your investment.
To give you an idea of how your team can assist you, consider the following:
- Tax efficiency starts with corporate structure and how it is integrated with your personal structure;
- The best way to optimize tax efficiency is through your assets — how, what, and where you hold them;
- One of the worst things you can do is short-change yourself when it comes to your exit strategy and end up giving a big chunk of your earnings back to the government. Your team can help you find ways to reduce this tax. Examples could include reducing your capital gains tax by allocating more of the purchase price to equipment, or by spreading out the tax burden over time.
- Don’t forget about your final exit strategy — estate planning: consider what you’d like to happen in the event of your death. Your team will help you with this and create a plan that achieves your goal in a tax efficient manner.
Bottom line is a well-organized, cohesive advisory team pushes you to be a better entrepreneur, puts more net dollars in your pocket and helps you live a full, more rounded life by making you 'irrelevant' to your business.