To determine whether you have or you are going to create a lifestyle business or a growth business you will want to ask yourself the questions below. Before you start that process, I first want to stipulate that we are not recommending one type of business over the other, as this decision is one that you have to make on your own. This decision should be made before you start a business, as there is a belief at times by those starting a business that they will spend less time in their “Corporate” job and can still make the same money or more. The truth is that business is more unforgiving about time management than if you are working for someone else. Sometimes the business is going to demand more of you than you feel you bargained for when you started, so it is important to understand the type of business you are building as well as your business goals for the future.
Questions To Ask of Yourself
1. Is the most important thing about being an entrepreneur is that you are your own boss and you make your own hours?
2. Is your business plan in your head?
3. Do you on a regular basis ensure you have time on a weekly basis to attend to family or personal matters during business hours?
4. Do you have multiple family members or friends on your payroll?
5. Do you have assets on your books that are used for personal consumption: cars, boats, cottages?
6. Does your business pay for your golf or other recreational memberships?
7. Does the business pay for parts of your family vacation?
8. Do you borrow money from the business on a periodic basis?
9. Have you made decisions in your business based on your personal situation
10. Do you maximize your dividends at the end of every year?
11. Do you avoid trying to work overtime in your business? (More than 40 hours)
12. Do you shut down the business while on vacation?
13. Do you feel having a budget for your business is too constraining?
If you answered Yes to a majority of these questions, chances are you are in a lifestyle business.
There is nothing wrong with developing a lifestyle business, but you do need to recognize that fact and not set unrealistic expectations for yourself. It usually starts with the goals you want for the business and why you created the business in the first place. If you are creating the business just for income for you and your family and it is something you can do and decide what time you spend in the business, then you are developing a lifestyle business for yourself.
Often in a lifestyle business, the business strategy is in the business owner’s head and at times they feel they are the only one that can execute it. In most cases they have not communicated this to their team, which can be a problem, as employees cannot buy in to something they are not aware. Because of this, employees usually do not perform to the expectations of the owner, as they are not aware of what their true role is in the business. In many cases do not have a job description and perform their job based on a task list. You have to understand that in some cases this could be an up and down struggle for you as in order to grow and generate more income, it will require you to focus more on the business and invest more time. Any business can flounder and affect the lifestyle you have, and since most lifestyle businesses are very reliant on the owner, you could wait too late to turn things around because there is not a commonly understood strategy in place.
Lifestyle businesses are harder to sell and if they do sell the business owner never receives the valuation that they expect. Through dividends, personal loans, and other aspects as high salaries for owners and family members, the business has been deprived of the cash it needs to keep the business current. This all takes away from the value of your business when you plan to sell it. If the business strategy and a majority of functions are performed by the business owner, then the true value of the business is the owner. If the employees do not have defined roles where they work independently and provide value, the employees will not be transferrable and will reduce your value as well.
The positive side of a lifestyle business is (often found, but not always) the increased loyalty factor to the employees and a culture where people will work and stay for years. Unlike a growth business, a lifestyle business can come out of a downturn because due to the family-like environment, they have not laid people off and do not have to rebuild. In many cases the business owner will forgo or take a reduced salary to keep the employees. Customers are loyal to the owner and tend to stick. And finally a lifestyle business provides a less risky and more stable environment for the owner and their family.
In most cases, those building a growth business are passionate about what they are doing and are all in, and often putting their own assets at risk, when it comes to the business. They are usually risk takers and are willing to do whatever it takes to make their business a success. They tend to start with a business strategy and invest themselves as well as look for outside funding through lenders or investors to fund the business properly to get it off on the right foot.
Those that start growth businesses look to build a winning team for their business and surround themselves with those that have strengths that they do not. Usually they are type “A” personalities and put everything into building the right foundation to help the business grow. The goal for them is for the business to be able to run without them so if they are not around, they have others to rely on and the business continues to prosper.
They understand that the business and they as the owner personally are two different entities and they do not make business decisions based on the personal situations, goals or on emotions, they are purely business decisions. In many cases there are multiple shareholders or investors, so the business owner answers to a Board of Directors and sometimes has to make hard decisions. The downside is these decisions are focused on short term gains as those shareholders or Board members are looking for quarterly ROI’s. When they are in a financial downturn, the first thing to go are employee’s salaries and unnecessary expenses. For this reason there is usually not as much loyalty from employees and turnover is higher than in a lifestyle business.
Though the business owner of a growth business may still have a hard time stepping away from the business when it is time, it is important to them that the business is sustainable without them and they can hand it over to someone else in their family, take it public, or sell the business and get the value of what they expected.
There is no right or wrong answer for this decision and there are plenty of lifestyle businesses that make enough money that it satisfies the owner and allows them to live the life they want. On the other hand if you want to build a growth business for yourself, you need to be willing to sacrifice and give up your time and efforts and take risks to make it a success. It is short term pain for long term gain. If you are not that type of person who can do that, you need to know that before you start your business.
RK Fischer & Associates
Our offices are located now in Sarnia, Ontario but are able to provide services across Canada . Our local service area is Sarnia, London, and Chatham-Kent and surrounding areas. We will offer some onsite services in Windsor, Kitchener, Woodstock, Waterloo, Cambridge, Guelph, and Hamilton that require onsite work, such as facilitations or business assessments. We will also provide services onsite outside these areas for a travel fee across Southern Ontario.
For services outside our local service area within Canada who require onsite services, please contact us to determine how we may best service your requirements.
SUBSCRIBE TO OUR
SMALL BUSINESS INSIGHTS NEWSLETTER