When it comes to building a small business, don’t expect to do it all right out the gate. “You can’t grow everything all at once,” says Bay Area–based financial advisor Kathryn Amenta. “So what are the most important things that you need upfront to make sure that your business runs smoothly from the start?”
After 25 years of advising entrepreneurs, Amenta understands that to keep clients happy and make your business profitable, business owners need to have their infrastructure in order. To deliver great service, you have to set a high standard of professionalism in everything from business contracts to office environment.
Part of that equation is about being good to yourself: If you’re a happy business owner, clients will pick up on that and be more inclined to work with you. Here, Amenta discusses three things that can help you and your business: the hours you keep, the salary you pay yourself, and the overhead you put toward your office location.
1. Work Hours: Your Time is Money. Amenta advises business owners to put plenty of consideration into operational and financial tasks, beyond the fun parts of the job, such as designing. “If you don’t want to make all the same mistakes that every business owner makes, you have to have some of this stuff thought out in advance,” she says. “You have to have a contract of engagement figured out before you ever have a client. What’s acceptable? What about payment? People often forget that. You might say, ‘I love being an architect. I love being a designer.’ Okay, but you’re doing it because you want to support your life, too. So you have to be really clear about the money.”
One thing to determine early on is the hours you want to keep. “In the first year of my business, I learned that, even though I was going to work some hours I didn’t like, I wasn’t going to give in on certain hours that I really didn’t want to work,” Amenta says. “Those were the ones where, if people stood me up, changed their mind, or didn’t pay, I was always resentful. It was a sign to me that I shouldn’t even make that time available to people.”
2. Salary: Determine Your Worth. Many business owners keep pouring money back into their business to keep it afloat and ignore their own paycheck. “If you are performing work tasks within your business, then you should think of taking a salary that is commensurate with that of others in your industry who do the same kind of work,” Amenta says. “That would be the rule of thumb, and you would always pass the IRS test with that. So do a little survey of others in the field who were doing whatever you were doing, and determine whether you can afford to pay yourself a salary. ‘Nothing’ might be the answer for quite a long time.”
As Amenta explains in her article, “4 Best Practices to Start and Stay in Business,” startups need enough investment funding to last 36 months. “Your business has to, number one, support itself completely,” she says. “And number two, it has to support you. If you can afford to do it, take nothing now and get paid later. You can take deferred salary, which becomes a liability to the company. You should get back at some point what you left in the business, with some interest, once the company begins taking in revenue. Calculation of deferred salary can be based on your experience. And from an accounting perspective, long term, if you’re not paying yourself a reasonable salary and underestimating the real expenses of the business and exaggerating profit, that’s a pitfall.”
Another option is to take some salary now. “You might have some startup money, but it still might not be enough to run the business and pay you the full amount that you think you’re entitled to, in which case then you may bring an investor into the business and defer income. There are a lot of different possibilities that are all legal. But if a person goes into a business with partners, compensations become more complicated if you want to maintain your same ownership interest in the company.”
3. Location, Location, Location. As for renting office space, what you do should depend on your industry and geographic location. “If you’re an architect doing high-end remodels in San Francisco, you should be on Sacramento Street,” Amenta says. “In San Francisco, we don’t worry as much about things like traffic and accessibility and parking because we’re just used to dealing with what we deal with.”
It’s a different story in suburban areas. “If my mother had to go somewhere and couldn’t find a parking space in front of the front door, she wouldn’t go,” Amenta says with a laugh. “So you have to know those kinds of things. Is it best that you be located around a number of other competitors, or away from competitors? A design-center approach is a really great idea—one-stop shopping where people can go and find a variety of those services in one pleasant location.”
Or perhaps you’re in the type of industry where you visit clients, not the other way around. “Then you want to be careful about renting space,” Amenta says. “Space is such a big chunk of overhead. If you don’t need to be in an expensive rent neighborhood, then don’t. Or, is there a way to have your business in a lesser neighborhood but have a lovely conference space?”
Sometimes, storage is all you need. “One of my close friends is an electrical contractor, and he runs his business from his home office and rents warehouse space for all the electrical supplies, and that’s where he keeps an extra truck. So he can go anywhere, and the same thing for a plumber. So marketing is more important for them than location.”