If you’re considering making the leap and starting your own business, you’re likely eager to ensure that you’re making a smart decision. While it won’t guarantee success, putting your finger on the pulse of the small business environment can help you determine your path forward.
Is now really a good time to start a business?
What is the current landscape that small business owners are facing? What are their assumptions, their plans for future growth? And finally, how can new would-be business owners ensure that they start off strong?
To answer these questions, I had the opportunity to speak with David Burch, Small Business Banking Division Executive with Bank of America. In our conversation, Burch provided his own insights and added color around Bank of America’s America Small Business Owner Report, which was released in spring of 2017.
The findings of this report showed that overall, small business owners are feeling an increased confidence in the small business environment, and are predicting future (if not immediate) growth. Keep reading for Burch’s take on the current small business climate, as well as his top recommendations for startup success.
The current small business landscape
According to Burch, the horizon is sunny for small businesses.
“I think it looks very promising,” he says. “There’s a sense of real optimism.” When surveyed, 50 percent of small business owners said they feel that their local economy is improving.
That being said, the perception of an improved environment is impactful all the same. Burch expressed that entrepreneurs are feeling more hopeful both in terms of their abilities to grow their individual businesses and in terms of the overall health of the small business climate in general.
“What kind of struck me from the optimism as well was that it really crossed all levels,” he says. “Whether it was their local economy, nationally, or even globally based on a six-month movement, there is significant confidence building across the owners.”
What does this mean for the small business landscape? Not only that, what does this mean for new entrepreneurs, hoping to start a business soon? “When you have confident small business owners, that confidence kind of breeds through their business and I think you find the outcomes will be just as positive,” Burch says.
A climate of stability, rather than rapid expansion
That being said, this hopeful climate for small business owners doesn’t necessarily translate to predictions of immediate or steep growth. Entrepreneurs aren’t expecting to see huge increases in profits this year, either. Of those surveyed, only 48 percent expect to see their revenue increase over the next 12 months.
If expansion or hugely increased profits aren’t guaranteed, and if there are still plenty of unknowns on the horizon, why do entrepreneurs feel so optimistic? According to Burch, while many businesses may not be seeing huge profits, they are no longer seeing losses, and this in itself is seen as a good sign to many small business owners.
“When you look at the revenue, you take ’15 to ’16, and almost 80 percent of the business owners either stayed the same with revenue or they increased,” explains Burch. “Almost 80 felt like it either exceeded their expectations or met their expectations […] so when you experience stability or you experience growth, I think that’s where confidence kind of comes from. As opposed to, going back six, seven, eight years, when there were declines in revenue, now you’re seeing stability, it’s positive for a small business owner.”
Reinvesting into the business
Rather than focusing on rapid expansion, many business owners are interested in creating a more stable, solid foundation and planning for the future.
56 percent of business owners do plan to grow their business over the next five years, but instead of planning for expansion in terms of, say, new locations or other dramatic growth, they’re planning on reinvesting in their businesses. In particular, Burch noted that many of the business owners surveyed plan to invest in their businesses by implementing plans for increased training and on the job knowledge.
While in previous years, a very small percentage of business owners took out loans to provide employees with further training (only 5 percent), the number is now higher, with 15 percent of those surveyed suggesting that they plan to use loans to help train existing employees. “They can use these funds and have the flexibility to do additional training for associates,” says Burch.
Filling new market needs
So, what kinds of small businesses are dominating the current landscape? According to Burch, there hasn’t been a “dramatic shift” in the types of businesses appearing and succeeding in recent years.
However, Burch did say that an influx of new service- and consulting-based businesses are popping up to meet new, growing needs. “There are companies that are specializing in helping small businesses find the right healthcare channels and maximize their expenses, or deal with HR type concerns,” says Burch. “You’ll see some businesses like that springing up that help connect the current worry in the industry.”
For example, as many small businesses are concerned about how to manage their healthcare obligations, new businesses have sprung up to meet this need. “[These businesses] are starting to spring up because you see healthcare is still the biggest concern that small businesses have,” says Burch. This concern was echoed in Bank of America’s survey findings: of those surveyed, 64 percent rated health care costs as the “top economic concern.”
Ultimately, it’s up to new businesses to pick up on a need and create a business to solve this pain point. If you need help determining whether or not your business solves a real problem, and figuring out if people actually need your product or service, check out How Do You Know If You Have a Good Idea for a Business? We’ve also created a free download that will help you test your business idea.
How does work-life balance fit into all this?
While business owners may be feeling good about their business prospects, they’re busier than ever. 61 percent of business owners surveyed say they regularly work more than 40 hours each week.
However, 82 percent also stated that they have achieved work-life balance. What gives?
There’s certainly an argument to be made for the feeling of increased job satisfaction that comes along with being an entrepreneur and running your own business. While they may find themselves working extra hours, it’s quite possible that entrepreneurs feel less overworked than they would if they were working for someone other than themselves. After all, when you’re working for someone else, you might not feel the same level of pride in your work.
While this is certainly a positive, Burch is quick to emphasize the importance of paying attention to overall health and wellness and encourages small business owners to make sure they’re being thoughtful of their own work-life balance.
“I’m not sure people are talking about that enough, and I think it’s important for small business owners to find that balance and make sure that they’re taking a break and taking a breather,” he says. “If you’re going to work 60 to 70 hours a week, something’s going to break, and you’ve got to be thoughtful about your health and wellness as a small business owner.”
Burch’s #1 tip for would-be entrepreneurs: Don’t overlook planning
Burch believes that the best thing new entrepreneurs can do when they’re starting out is to have a clear plan for their business. “The advice that I give most people I’m sitting down with is just ‘take a breath, slow yourself down a little bit, and have a plan,’” he says.
Business planning is important not only in terms of gaining funding, but having a trajectory for where you plan to take your business overall.
“I met with a dentist in Ohio last Thursday and she’s getting ready to start her business,” says Burch. “When she showed up to our lunch […] she had a plan. She had her three ring binder.” He was impressed by her preparedness and the attention to detail she put into creating her business plan.
Burch notes that plenty of entrepreneurs might not be used to the instability of running a small business, and therefore should use planning as an opportunity to think through all the important details. “I think some people will exit stage left from whatever they are currently doing, where they have stability […] and they just jump out and they really don’t have a plan,” says Burch.
Burch’s next bit of advice? Know where the money is coming from, and work your financial projections into your business planning.
“When you have your plan, you run out your revenue, you examine what your costs are and make sure that you have enough capital,” he says. “Wherever that capital is coming from—whether it’s a loan you can take, SBA, personal credit card, angel investors, family, personal money—know what that capital requirement is for that first 12 to 24 months. Because once you run out of money, you run out of money.”
Not only should new entrepreneurs create a financial plan that enables them to keep their businesses up and running, but Burch warns hopeful small business owners not to overlook creating a plan for their personal finances. “Everyone has expenses they have to pay, whether their car or home mortgage,” he says. “So, have a plan first. Slow yourself down for a minute to get your plan and then run that plan out for 12 to 24 months. Stress test your business a little bit to see what those worst case scenarios are, and see if you have the capital necessary or access to that capital to be able to sustain yourself—because you have to get through the first 18 months in a small business.”
If you are thinking about starting a business, the fact that the current small business climate is hopeful will likely work to your advantage. However, at the end of the day, it isn’t just about feeling optimistic—it’s about having a plan for success.
If you’re looking for more resources on how to get started with your business plan, our business planning guide is a good starting point, as is our introduction to Lean Planning. Or, you can check out our library of sample business plans. If you have any questions or need help finding a specific resource, feel free to reach out to me directly on Twitter @BrianaMorgaine.