Q. Dear Zenagos, I started my boutique media company in 2018. Four years later, revenue is set to exceed $400,000 for 2022 with a growing list of branded clients. I’m stuck on where to go from here. I am recruiting contractors, creating systems that can be standardized company wide, but am stuck on if I’m ready to hire employees. Do I pay them with cash on hand? Do I take out a loan? Do I hire a part-time person first?
Congratulations: You are ready to transition from being a service professional to being a business owner! This is going to be a big step, and you are wise to take it seriously.
You have a lot to lose
You are already more successful than most small business owners will ever become. Achieving $400,000 in gross revenue is a real accomplishment. Your media work must be of premium quality, and your clients must be serious companies that value their reputations. As we discussed in our earlier blog post about hiring people to expand your business, transitioning a client from yourself to an employee is more challenging when you have demanding, upmarket clients. If your employees are less dependable or less competent than you are, then your reputation will suffer, and you could lose valuable clients. You have built something special, and your first priority should be to protect it.
You also have a lot to gain
When you are a “service professional” (the person performing all of the work of the company), then you are the company. For example, this is the situation for most small business lawyers and accountants: Nobody else can perform the work, so you’re never really off the clock. You can’t take a vacation because your clients always have some urgent need. You can’t get sick or injured because the company’s work stops when you’re not there. You probably don’t have a disability plan, which can be a problem when you work with locations, equipment, and talent. So, you have a whole lot to gain from “professionalizing” (stepping back to become a manager, and hiring employees to perform the work). By building a sustainable business, you will alleviate some of your biggest risks.
Get a business mentor to help you make a plan
In order to build your new business, while you continue to offer your existing services, you need to make a plan. By “plan,” we don’t mean a 60-page document that will grow dusty on a shelf. We’re talking about a list of practical steps and a calendar for when you will execute them. You need to work with a mentor (someone with extensive experience in growing service businesses) to help you plan the functions of a professional business. We call these functions the FACTS:
- Finance: How much money will you need? How many employees can you support?
- Acquisition: Does your current marketing process provide enough leads for the future?
- Customers: Will the type of client you serve change as a result of this transition?
- Team: What roles do you need to hire, and how will you find them?
- Sales: How will you convert “leads” to customers as you grow?
Your mentor will help you to anticipate what you will need for each area of the business and to figure out how much money you will need and when.
You will need money
The transition from service professional to business owner will require some money, at least for a while. The money will fund some transition activities:
You may have enough savings to cover the transition, or you may need funding (a credit line, a loan, or one or more investors). Once you know how much money you need, it will become more obvious what the best funding options are.
You will need patience
You are going to need to stretch yourself and develop some new skills. There will be times that you will wonder what you were thinking! That’s a normal part of the process. You need to give yourself a break and remember that you are learning a valuable set of leadership skills:
You are going to need to learn how to plan your cash. You need to figure out how much of a cash cushion you need in order to be comfortable. Everyone’s risk tolerance is different, and there is no right answer to this question. Some people don’t mind leveraging all their cash because they have long-term contracts and are relatively certain that their clients will pay them on time. Other entrepreneurs may feel more risk-averse because their clients are also start-ups with cash timing problems themselves, or they might expect that some clients will turn 60-day payment terms into 120 days during a recession. You need to choose a number that will allow you to sleep at night (not one that is so thin that you have nightmares about making payroll).
This is going to be an exciting time, a time that you will look back on as one of the times in your life when you grew and learned the most. And know this: You can do this! Picture yourself ten years from now, having met your ambitious goals. You are going to get there, and it’s going to be an amazing feeling. But don’t try to get there alone. Make sure that you get a mentor who has grown multiple businesses and can help you make a strong plan before you leap. You can get a free mentor at SCORE, or you can pay a business coach. Regardless, make sure to find someone you trust. When you are on a hazardous trek, an experienced guide can be a lifesaver.