Alvin Hall, financial adviser, author and media personality, tells us why, in business, you to need know your ‘nut’; make your business sexy and prepare for the unexpected.
Your Business: Alvin, you’ve had a number of successes throughout your career including your BBC series Your Money or Your Life and your highly acclaimed literature, but where did your career begin?
Alvin Hall: I’ve had several careers. I started out as a high school English teacher. I did that for a couple of years and then I went to graduate school. While I was in graduate school, I worked in a teashop, and freelanced writing reviews about music, dance and the arts for a local alternative newspaper. After that, I taught composition literature at a college for two years. I think I was trying anything that seemed interesting because I did not really know exactly what I wanted to do. At some point, a former college roommate asked if I would work for him and his father at their training company on Wall Street. At first I turned it down because I wasn’t very interested. But then my friend made a very good point. He said: “You love the arts. You will always love the arts. But you can’t afford to buy art you love unless you have a good job.” And so with that, I came to work on Wall Street. My first job, Director of Course Development, was to design training programmes for that company. However, gradually we discovered that I could teach these programmes because I had written them. After working for two other companies, I eventually decided to set up my own training business. I was good at it and I enjoyed it, so why not?
I still run this business and do teach training classes about the financial markets. I’ve never given this up. Even when I was at what I considered to be one of the peaks of my success in Britain, I always kept my training business running. I never gave it up.
YB: How have you ensured that your business has remained successful?
AH: My company is a small consultant business. I’m very much aware that in my business, there’s a huge human element involved because I train real people in real classes. The success of my business depends on the classroom experience they have, so I focus on that. That’s the takeaway: if my students and my clients like my classes, then they will tell their friends at other firms and maybe that firm will hire me.
YB: Building a good reputation must be integral to any business, but particularly essential for anyone starting his or her own small business?
AH: I think that anytime you start a new business, you need to accept two facts up front. If you don’t want to accept these facts, then you do not need to go into business:
First, you will not be in total control of your life. People always tell everybody: “You start your own business and you are in control of your whole life.” That is a complete and utter myth. You will be working for your clients and they will, like it or not, control or shape much of what you do. If you don’t have clients, you don’t have a business. It’s that simple. People who think that they can take a three-week holiday in the early phase of building their business are delusional. When people start to live off their business, rather than use the money it generates to sustain the enterprise, the business is generally not going to last very long.
The second reality is, you’re going to work harder than you’ve ever worked in your life. Some people start businesses because they think “I’m tired of the corporate bureaucracy and the crazy demands”. But in truth, you work much harder. In the early days, you will be wearing lots of different hats and making all of the decisions before you’re able to hire some employees to help you. And remember that you’ve got a silent but powerful partner in your business: HMRC. You’ve got to file and pay your taxes. If you don’t file the taxes, the government will close you down.
YB: Once a budding entrepreneur is set on going into business, how can they go about raising funds for a start-up project and be realistic about this aspect of business?
AH: You can’t raise the money quickly for a start-up anymore. Most people start businesses using money they’ve saved. The line everyone uses today is if you don’t have “skin in the game” (i.e. your own money in the business) we’re not going to put money in that business.
Remember: people start all types of businesses and most don’t even last five years. The biggest reason is that they are under-capitalised. So before you even start a business, you need to save up enough money, or have access to enough money, to be able to carry that business for at least a year. You don’t start out bringing in hundreds of thousands of pounds of revenues; you start off struggling to bring in the clients, to convince them to use you.
YB: Once a business owner has secured funds, what should they look out for in terms of organising their finances and looking for an accountant?
AH: Make sure that you know the expenses and potential profitability of your business. People tend to underestimate the costs of doing business and exaggerate the potential profits. You need to always put money aside for the unexpected (I like to call them the “what ifs”) in business, because they will happen. And pay yourself a modest regular salary at first (if you can) and use your profits to support the business. This is a really important concept. The more you sustain a business, the more you can build and develop it, the more it will provide an increasingly better living for you.
Make sure you have a reputable accountant, somebody that has the right credentials and experience. You can usually find one through other business owners.
YB: Almost treat yourself like an employee then?
AH: Yes, treat yourself like an employee, paying yourself a wage or salary rather than pulling a lot of money out of the business when you have a really good period. This discipline helps you avoid the boom and bust feeling when business drops off unexpectedly – as it will. You need to be realistic. Running a business is about understanding and preparing for the risk of business. Some people, in their understandable optimism about their new venture, don’t focus on the fact that they need to have a financial cushion there. I personally run my business with one year’s cushion always there, which I roll over each year.
YB: Especially now with the economic climate as it is, that’s going to be a big challenge for businesses this year. Have you got any advice for small business owners, other than making sure that they save, to ensure that they survive 2012?
AH: Yes, they need to know what they call in business their ‘nut’. Their nut is the amount of money you need to earn to keep the business going. It should always be in your mind. I know exactly how much money I need to earn each month to keep the business ticking over. And I try to think of creative ways to attack new clients, to generate the needed cash flows. It’s not always easy but in this economy you can’t spend a lot of time looking backward and getting frustrated or angry. You can only change the future. Focus creatively on what you can change.
YB: How do you think small business owners can tackle the possibility of another recession, and prepare for the future in general too?
AH: Recessions are very hard because business usually contracts on all fronts. What you do to prepare really depends upon what type of business you are in. If, for example, you are a business that depends upon the public, then you need to do “what if?” planning. Look objectively at “what if we lose 20%, 30%, 40% of the people that walk through the door, can this business continue?”.
The other thing they need to do during a recession is to use the time to think differently about the business. Yes, business is slow, but use the time to be creative and maybe tweak or re-invent the business. View the recession as an opportunity to do something different. I know from experience that this is hard because it’s difficult not to be anxious. You can’t let yourself become mired in that anxiety. That is certainly a formula for failure.
YB: I’d imagine that remains true when people are marketing their business as well?
AH: Absolutely. Sometimes you can get great ideas from people who are in other industries, not related to yours, that could change your business life. That’s exactly what happened to me. I have a great friend, Ken Meeker, and he has been in the fragrance and sun care business for years. When I was talking to Ken about starting up and marketing my business, I told him I was going to put together a really good brochure to mail to potential clients. He said to me: “Alvin, why are you doing that? Everybody else has done that. Why don’t you do something different? Why don’t you make yourself sexy?”
I thought, “What do you mean?”. He advised me to hire a PR person with in-depth experience in the securities training industry. Her strategy was to get me invited to the important industry events and to write articles for some industry publications. At the events I would meet my potential new clients, then follow up by sending them my brochure with a more personalised note and one of my published articles attached. It was a completely different, more personalised way of thinking about marketing my business. The strategy worked and my business took off. Over the years I’ve continued to listen to Ken’s wise advice and to let it inspire me to create new marketing strategies for my training business.
YB: Looking at the initial planning stages then, for those people who are at the grass-roots level, what are the crucial elements for a thorough business plan?
AH: A business plan helps you gain an objective perspective on the various parts of your business… You have to define your business and put the projected numbers down in black and white: how much it’s going to cost you to run this business; what are your projected sales or turnover from that business? Also it helps you define your market and how you’re going to reach it. If you start the business because you think your idea might appeal to the public but you can’t clearly define what segment of the public that is, then your business is probably not going to work. You need to specify your market and then your strategy to get those people through the door or to use that product. So the business plan is crucial. I know very few businesses that started out automatically making a profit. That’s why you need to have money in the bank. Your business plan will help you determine how much of a cushion you will need.
YB: Finally Alvin, looking back at all your triumphs and perhaps challenges in business, is there anything that you wished somebody had told you right at the beginning or something that you’d like to pass onto our readers?
AH: Stay in control of the numbers and stay in control of yourself. Mastering the numbers behind your business will give you the financial benchmarks you need to help keep the business going and growing. You also need to monitor your own behaviour so that you do not become a financial or marketing detriment to your business – i.e. pulling more money out of the business than you should, or inadvertently treating your clients poorly. And finally stay in touch with what I like to call your “inner hunger”, those thoughts, desires, and emotions that made you start your business in the first place. They are key in motivating you to keep your business fresh and prospering for the long-term.
This article was first published in Your Business with James Caan in January 2012.