RUNNING A SMALL BUSINESS

Written by Vincent Santiago

Historically, many members of the Transportation Club of Tacoma worked for larger, publically held enterprises and government entities. As our Club has grown, an increasing number people who own or work for small businesses have joined our membership ranks. I am one such member. I spent eleven years in the Marine Corps and nearly twenty years in the corporate world. Almost nine years ago, my wife, Celine, and I opened our own business. Because we are gluttons for punishment, we opened a second small business five years ago. My experience with our small businesses is quite different from the experience I had with the large organizations for which I previously worked.

Defining “small business” is probably a useful starting point. The US Small Business Administration defines a small business concern as one that is independently owned and operated, organized for profit, and not dominant in its field. Generally, the SBA characterizes small businesses as having fewer than 500 employees (for manufacturers) and less than $7.5 million in revenue. The Patient Protection and Affordable Care Act qualifies a small business for a tax credit if it has fewer than 25 full-time equivalent employees with average annual wages below $50,000. All of these guidelines seem like pretty big businesses to Celine and me.

Small businesses have different cultures than do their larger counterparts. The entrepreneurial reputation associated with small businesses comes from the ability to act quickly, adapt, and work “outside the box.” This separates small businesses from large ones, where size alone imposes bureaucratic methods of control and slow communications through many layers of decision-makers. Small businesses tend to have closer and more constant contact with their employees, customers, and suppliers. On the other hand, small businesses’ capabilities and resources are typically limited compared to their larger counterparts. Capital for investment is scarce. Small businesses typically offer less in the way of benefits to their employees.

It is worth noting that these observations about small and large businesses are generalizations. There are big businesses that are as nimble as any small one. There are small businesses that a painfully slow to react to an opportunity when one is presented. The difference between the corporate world and small business ownership for us is that we no longer have staff experts (Accounting/Finance, Human Resources, Purchasing, Safety, Real Estate, Licensing, etc.) who advise us on what to do. We have to figure it out ourselves and hope we got it right! We believe that it why most small business owners put in so much time. You run the business during business hours and do the extra work at night and on weekends.

For Celine and me, the first distinction for our small businesses is that the money we risk on our ventures really is our own. I always tried to “treat the company’s money like my own” when I worked in the corporate world. This took on a completely new meaning when we leveraged our home to start our first business. We do not play “let’s bet the house” with our businesses. While we pay for a ton of insurance at a very significant cost, we always keep in mind that our home and savings are at risk if someone sues one of our businesses. We would most likely consume most of our personal assets simply defending ourselves if something bad were to happen. We are amazed when billion dollar corporations require us to subrogate our insurance to them in order to do business. We buy our insurance to protect ourselves and do not understand why large corporations expect us to subsidize their insurance when they have better coverage and lawyers than we do.

Another aspect of small business is what happens with profit. Celine and I are the shareholders, so we pay ourselves with what is left after everyone else is paid. We can choose between investing for retirement or reinvesting in the business. We favor reinvesting in business and favor investing in business relationships. One time, I took a customer on a fishing trip. While he was eating a sandwich that Celine made for him, this customer decided he might be paying us too much because we could take him fishing and feed him. I explained our alternatives with respect using our profit. I explained that, unlike him, we pay for 100% of our medical coverage, dental coverage, life insurance, and retirement. I told him that we valued his business enough to reinvest in it. As he took another bite out of Celine’s sandwich, I asked him how our medical/dental/insurance/retirement tasted. The business relationship has blossomed.

Another thing that really challenges small businesses is getting paid. We work with business entities that have significant resources. We sign contracts that place significant responsibility and liability on us. These contracts also state we will be paid in a specified amount of time. Most of our business partners are small businesses, and we typically pay our business partners more quickly than our customers pay us. We are often told that we are not paid in a timely manner because “our customers haven’t paid us.” We don’t sign contracts that say we will wait to get paid until someone else gets paid. We shed slow-paying customers relatively quickly, and some of them can’t understand why.

Finally, the most taxing activity for us is paying taxes. We never imagined how many government entities would have their hands in our pockets. Literally, we pay taxes every week. On January 15th, we sent out fourteen checks for taxes. Federal taxes, state taxes, local taxes. Payroll taxes, use taxes, licensing fees (aka…more taxes). And never forget to pay taxes. The affected government agency will threaten to shut your business down within days. A few years ago, a clerk at a state agency decided they we couldn’t possibly be owed a refund. So she simply reclassified our business and tripled our tax liability. The move was completely unfounded and would have broken our business. We paid $5,000 in attorneys’ fees to get this fixed, and we had no recourse to recoup the legal expense this enterprising state employee generated. A couple of years ago, I sat at a table with the owners of three other trucking companies. We agreed that the government believes that our primary responsibility is to pay taxes, not operate tractor-trailers safely on our roadways.

Despite these challenges, I could never go back to the corporate world. I have the best boss I have ever had in my entire professional career – my wife, Celine. We have been able to bring our son, Dominic, into our business. We have three wonderful veterans driving for us – Dave, Casey, and Ben. Jan and Gayle work wonders in the office. Some people think that you get to choose your customers when you have your own business. That is true to a degree. We have some wonderful customers and some challenging ones. What we are able to do is choose customers who benefit from our companies’ strengths. We have a great group of business partners, to whom we owe most of our success. What is most important to Celine and me is that we are still able to keep the promise we made when we started our first business from scratch almost nine years ago. We are able to share the blessings of our success with our employees, customers, and business partners. That will never change.