Small Business Myths You Can Put Out of Your Mind
When it comes to small businesses, everyone’s got an opinion.
The problem is that a lot of these opinions worm themselves into the world of facts. Before you know it, they’re unbreakable rules.
Well today, we’re going to break them!
Here are nine small business myths you can absolutely forget about, leaving you free to focus on the important stuff.
1. Getting approval for a loan takes a long time
This is a myth that’s a holdover from an analog era, back when paper was king and the fedora was a standard part of a man’s wardrobe.
During that time, it took a while for lenders to collect all the information they needed to decide your loan fate.
In fact, it could take months.
Fortunately, we’ve left those days behind.
Today, the loan application and approval is a lot faster thanks to online applications and bot-powered loan processing. Loans can be approved in as little as five days.
Most lenders (and not just your payday loan type places, but actual lenders where you’ll get a good rate) will process applications in around two weeks.
So whether you’re looking to starting a new business or just need a major cash infusion, credit might be closer than you think.
2. Your new business will never be extended credit
There are few small business myths as pervasive as this one.
And even fewer that are further from the truth!
First off, yes – if you’re getting a loan to start your fifth business and you’ve launched four successful business previously, your loan application process is probably going to be easy. It’s probably going to be a lot easier than your first loan application.
This does NOT mean that new businesses are excluded from bank loans and have to turn to bootstrapping or angel investment exclusively.
Loan officers aren’t just looking at your past experience. They’re also looking at:
- Your business plan (more on that in a minute)
- Your marketing plans
- Your revenue projections
- Your costs and overhead
- How much you’re fronting for your business
If you’ve got all of these in place, then there’s no reason why a loan officer won’t grant you a loan. You definitely won’t be rejected just because it’s your first business.
3. Banks are the only option to borrow from
This old myth has perhaps the most robust foundation on this list.
However, in recent years it’s become a lot less true.
Traditionally, entrepreneurs with a great idea had to:
- Go to the bank in order to finance their idea
- Borrow from family members
- Offer their own home/possessions as collateral
- Get the money from an unscrupulous lender
However, that’s all changed now.
First off, the internet, through sites like the Network of Angels Organization, have made it a lot easier to connect those with ideas to those with money.
You don’t need to move in the right circles anymore – you just need a good idea and an internet connection.
Second, there’s been a huge increase in peer-to-peer lending, again facilitated by the internet (sometimes this is called ‘crowd lending’).
This allows people looking for loans to connect with people with a little extra cash. Peer-to-peer lending has a number of benefits:
- Distributed risk among lots of parties
- Easier access to credit for new small business owners
- Smaller loan amounts are possible
Of course, the traditional systems still exist and remain viable funding options. However, if you’ve exhausted these avenues, then there are plenty of totally legit options out there for small business financing.
4. You don’t need any money to start a business
You might think that this contradicts the previous point about access to funding, loans, and credits. But the truth is, even with more access to funding, every single lender wants to know that you’ve got some skin in the game.
This myth got going in the tech startup world, where all you need is a good idea and a dream.
But honestly, most lenders want to see you put up around 25% of what you’re asking to borrow.
So while you can run a business on a lot of credit, you need to have some evidence that you’re going to stick around and work like crazy to make your business a success.
5. You have to know how to run a business to start a business
You don’t. How do you think people learn how to run a business?
By starting one when they have no idea what they’re doing.
It might be helpful to partner with someone who knows what they’re doing and can help you avoid the rookie mistakes early on. But one of those unfounded small business myths is that you need to know how to run a business to start one.
Far more important than your business running skills are questions like:
- Is there are a market for my product?
- Is the market large enough for me to make a profit?
- Can I provide the quality that people expect?
These sorts of questions are the things that are going to translate into business success far more than previous business administration experience.
Because at the end of the day, if there’s no market for the idea, then even the best run business in the world will fail.
6. Your business plan needs to be a thesis
First off, yes – you are going to need a business plan.
But don’t let that scare you. Not only will it help you with lenders and investors, it will help you start your business.
What’s more, it doesn’t need to be a giant thesis, outlining in granular detail every single marketing campaign, new product, staffing position, and premise upgrade you have planned for the first 15 years of your business.
It’s fine to produce all that, but all you really need are the bones of your business:
- Your mission statement and objective
- The rough ideas of your marketing audience, revenue projections, and overhead
- Success metrics for each activity (you need to know if it’s working)
With that firmly in place you’ll have enough to get started.
7. You need to wait ‘until the time is right’
You’re never going to be able to predict the best time to start a business. And if you’re waiting for the perfect moment, you’ll end up waiting forever and never starting anything.
A better approach is to simply get your ducks in a row and say ‘ok, now we’re doing this in 30 days!’ and starting.
Otherwise, you’ll just put it off forever.
8. You have to hire pros
It’s absolutely critical for a new business to rein in overhead as much as possible to improve cash flow. Because even a short term cash flow problem can land you in a serious lurch financially.
And in the early days of your business, even a temporary problem can be enough to sink you.
Which brings us to staff. When you’re first starting out, it can be easy to assume that you need staff for everything.
But the truth is, staff overhead is the single biggest cost to almost any business. The more you can do to reduce it, the better.
And there are a few ways you can do this.
First, try and work with freelance service providers whenever possible. If you maintain a positive relationship, they can be your best employees, but if cash flow’s a problem then you’re not on the hook for a regular paycheck.
Second, do stuff yourself! While you might not be trained in everything, you can usually have a fair go of it with some rapid Googling.
Don’t be put off by small business myths that say you can’t do anything – odds are, you can do more than you think.
9. It’s better to own than to rent
In the long term, this might be absolutely correct. But remember what we said about staff overhead? Well, same goes for your premise and equipment. Reducing overhead by leasing and renting can help you by:
- Reducing your interest payments (borrow less, pay less back)
- Reducing your monthly costs
- Improving cash flow
And even though you’re not building equity, in the long run, it’s simply not going to matter. In the early days, it’s all about reducing overhead and improving cash flow.
There you have it. Nine small business myths that are totally and inarguably busted.
We busted financing myths like how long it takes to get a loan (not very long), how easy it is to get business credit (very easy), and the myth that banks are the only option (there are plenty of alternative sources of funding).
We busted starting out myths, like you have to be able to run a business to start a business (you don’t) and you need a huge, enormous business plan (you don’t) or you need to wait until the ‘time is right’ to get going (don’t wait! there’s no time like the present.)
And we busted myths about running a business. Myths like it’s better to own than to rent (for a lot of businesses, it’s not) and myths like hire pros to do every little thing (you can get by for a while hiring freelancers and doing work yourself).
Now, you’re prepared to get on to starting your business and turning those amazing ideas in dollars and cents.