Today’s installment of our Afraid To Ask: TFD’s new expert interview series, is all about being an individual who ran a successful small business for over thirty years, and what it takes to make it work. The Afraid To Ask series is meant to provide a deeper insight into a variety of subjects, and shed light on topics people are sometimes ignorant about (myself included in every topic I cover!).
This week I sat down (via the internet of course) with Dan Levine, who is here today to share what he’s learned after running a business for over 30 years. He dives in deep and talks about what it means to foster a strong entrepreneurial spirit that has permeated nearly every aspect of his life. He has picked up invaluable knowledge about what it means to run a business, organize finances in an intelligent and savvy way, and essentially wear every hat imaginable.
Dan was kind enough to answer the questions that follow. This interview is truly a fantastic insight into the world of a lifelong entrepreneur and the mentality it takes to not only survive it, but to thrive while doing it. It’s a great way to learn more about what this lifestyle entails from someone who experienced it firsthand for so long.
Can you tell us a little bit about the company you ran for almost 30 years? What made you want to start it, and what did you do?
Actually, the company I ran has been in existence since 1950, I only became involved in the mid 80s. At that time, it was owned by two families, mine being one of them, although neither of the families were the original owners. Originally set up as a distribution company selling filtration equipment to manufacturing plants, I oversaw the growth of the company’s product lines and the expansion of its customer base and territory. While that may sound glamorous, we’re still talking about a small business, a dozen employees at most, where the cliché of “wearing many hats” is certainly valid. That means sometimes being in the warehouse receiving or shipping out the goods, or driving the forklift (that was a sight to see), or working inside sales, processing orders, filing quotations, etc.
Who or where did you look to for financial advice when you first started out? Did you have a mentor?
The Company, when I joined, had two strong leaders, my father being one of them. He was an excellent mentor, guiding me through the complexities of the business, while at the same time standing by and letting me develop my own style. While, of course, trust must be earned, and exercising good judgment comes with experience, the most effective mentors are the ones who refrain from micromanaging. I was fortunate that my mentor trusted my judgment, allowed me to interact with colleagues, suppliers, and customers as I saw fit, and supported my marketing and sales ideas as we attempted to grow the business.
Additionally, it must be noted, I grew up in an environment where the entrepreneurial spirit was alive and well, thriving even. Many of my closest friends had gone into business for themselves, sometimes into family businesses, sometimes starting their own. Businesses ranged from distribution companies, to engineering firms, to clothing and fashion lines. As such, there was a lot of peer support, discussions about finances, about which banks were easiest to deal with, how best to structure the salaries and commissions of your salesmen, etc. One shouldn’t underestimate the value of interacting with trusted friends who are sharing similar experiences. Some friends and their businesses were more advanced and bigger than mine, some were newer to the party, but everyone had a point of view and a willingness to share.
Can you tell us a little bit about some of the bigger financial strains on your life as a business owner? How did you overcome them?
Typically the biggest strains relate, in one way or another, to the bank. Many businesses have lines of credit that need to be managed effectively and cost efficiently. I know it’s hard to imagine in today’s super low interest environment, but there were many years where the cost of credit was quite high, and businesses have lean years where they borrow more than they’d like.
On many occasions I had to negotiate terms with the bank. How much we could borrow (the size of our line of credit), at what interest rate we could borrow, how much they’d charge us to “monitor” our account, etc. Sometimes a year or two would go by between these negotiations, sometimes we would butt heads every couple of months. Constantly having to negotiate terms with your bank is a major financial headache, and some banks understand your business, and some are easier to deal with than others, so changing banks to get friendlier terms is part of the challenge, and the strain.
Additional financial strains that one has to occasionally face range from which supplier to pay first and which supplier can you put off paying for another week; and can you afford to give someone a raise – you’d like to, they deserve it, they may leave if they don’t get one, but you can’t really afford it.
In thinking back about the cash crunch issues, it is clear that every business owner must wrestle with cash flow problems at one time or another. Cash flow may be the single biggest financial strain on a business, and understanding how to deal with cash flow issues is critical. You can’t be overwhelmed by them, you can’t let them negatively impact your home life nor your outside work life, but it’s a major challenge to compartmentalize. Fortunately, I was pretty good at that, and I understood what steps to take when cash flow became problematic. Negotiating effectively with your banker, your suppliers, or your sales staff is paramount. Being honest with one’s staff is important. Promising a bigger raise when things improve a couple months down the road in exchange for foregoing a raise right now is helpful. Profit sharing, or increasing commission rates, is another effective way of compensating salesmen in lieu of a raise. On the other hand, being totally honest with your banker and/or your suppliers often isn’t the best strategy, so understanding when to be perfectly truthful and when to put a rose-colored glasses spin on things is a skill that entrepreneurs must develop.
Looking back, what were some of the key moments in life that you feel helped you the most to have the freedom/flexibility to retire early?
We all know of people who are driven to keep making more and more money, constantly giving up their quality of life to pursue more riches. We all know of people working hard into their mid and late sixties, finally retiring, then being bored to death, or falling ill and having a lousy quality of life until the end. I’ve been fortunate enough to surround myself with good friends in similar situations to me, and we’re often saying to each other – we don’t want to make that mistake; get out while you can; take a little less; enjoy your hard earned money when you’re at an age where you can appreciate it, because you never know when your health will fail or you’ll get hit by a bus.
So, I think more than “a key moment”, it’s my ability to put money into the proper perspective that was the key to retiring early. Sure, I’m fortunate enough to have some money, and to be able to afford to retire, but it helps to have a good sense of the purpose of money, being respectful and appreciative of money rather than being a slave to it. My wife and I are not extravagant, we have no desire to own a big boat, multiple houses, or drive a Ferrari. We have no debt, and we can budget effectively. Money doesn’t dominate our thinking, or take up a disproportionate amount of space in our heads. I understand there will always people with more money than we have, and lots of people with less money. As such, I don’t waste energy comparing myself to others financially; I simply try to figure out how to be comfortable with what we have. Those who can live comfortably within their means can often retire earlier than they think.
I’m told you now work as a volunteer advisor for entrepreneurs. Can you pass along some of the key financial advice you give to entrepreneurs when they first start out?
Thank you for asking. Yes, I am fortunate enough to volunteer with SCORE – Cape Fear Region, the Southeastern North Carolina branch of a national non-profit organization providing free business mentoring to small business owners and to entrepreneurs looking to start their own businesses. Young entrepreneurs would be wise to check out SCORE’s website. as it contains an abundance of great information on how to start a business, write a business plan, manage cash flow, etc. Many of our clients bring interesting ideas into our office but lack the know-how needed to set-up a business structure, secure financing, or effectively market their product to their target demographic. Of course, it’s not just financial advice that we are handing out, we need to explain to our clients that passion, hard work, and an enduring commitment are key components in running a successful small business.
What are some of the recurring issues people seek out your financial advice for?
Much of the advice we dispense relates to the securing of financing for the start-up business. Clients don’t realize that many business loans require a minimum credit score of 680. Additionally, banking institutions want some sort of security, or investment on the part of the entrepreneur, they typically don’t want to be the only ones with “skin in the game”. But we also spend a great deal of time discussing business structures; the pros and cons of sole proprietorship versus LLCs or S Corporations. Each one has different liability and taxation issues that can have financial consequences.
Is it possible to save money while simultaneously starting a business? If yes, what are some ways an individual can save better? If no, what are some tips to make sure that that individual gets back on track to meet their financial goals?
This is a difficult question. So much depends on how quickly the business gets up and running, and begins to generate a profit. Many young entrepreneurs starting a new business will forego a salary for the first six – 12 months as the business slowly becomes profitable. In this case, it helps greatly to have put aside some savings to get you through this initial period. Conversely, some entrepreneurs need to use every last bit of their savings to invest in their business, leaving them no safety net in case things turn out badly. So, in general, I believe that saving money and starting a business are almost mutually exclusive. I would suggest that in the early stages of the start-up, the entrepreneurs need to be extremely conscious of their spending, and very disciplined in the management of their money both inside and outside of the business. These would be the surest ways to get back on track to meet their financial goals – that and a really successful start-up!
Being an entrepreneur is hard work — can you give us three ways you stay mentally focused and positive when things don’t go according to plan?
Some businesses are about location, location, location. I’d say responding to “when things don’t go according to plan” is about perspective, perspective, perspective. There are some things you can’t control; the less you worry about them the better. Focus on what you can control, and work hard to fix those problems. In my business, we purchased inventory in one currency, and sold it in another, so the exchange rate was a constant worry. But, of course, we couldn’t control the exchange rate. Our challenge was not to worry about the exchange rate, and not to guess which direction it was heading, but to find solutions within our control (buying forward contracts/hedging the currency).
Secondly, it’s important to surround yourself with talented people you can trust. This includes staff, and outside professionals (accountants, lawyers, etc). Then, it’s important to delegate work to them, and, most importantly, not micromanage them. Nothing distracts you like obsessive micromanaging of staff.
Lastly, I found that looking outside for solutions, not just within the organization, helped maintain my focus and positive attitude. I always benefitted from networking with a variety of business groups, in person or online, or brainstorming with friends who were fellow business owners; but you can also join the Chamber of Commerce, or make an appointment with a local SCORE office to help you refresh or reboot.
What has been the most rewarding part of being an entrepreneur and the lifestyle it has afforded you?
Firstly, it must be said that being an entrepreneur isn’t for everyone. Not only do you have to have a very high level of commitment, and a burning desire to work 20 hour days, you have to understand that there is a huge amount of risk involved. The buck stops with the owner of the business; he/she is required to make critical decisions that impact the business and all its employees, and their respective families. You may need to borrow money from the bank, and put your house up as collateral; you may have disputes with staff, business partners, suppliers, and customers. Not everyone has the skill set required to be an effective boss/manager/decision maker and businesses need more than just a great idea to be successful.
But…the rewards of being an entrepreneur are many – you create your own hours, you don’t have a boss to answer to, and you control the purse strings. Personally, I was able to do a lot of work on weekends and freed up time to pick up my kids at school or take them to an activity or doctor’s appointment. And if you’re fortunate enough to have a thriving business, an entrepreneur can reap the satisfaction that comes with success, can have the pleasure of hiring staff that become part of the family, and can create financial flexibility that is difficult to achieve elsewhere.
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