5 ms·

This shows two important rules of running your own business very clearly: You need to understand every aspect of what's going on in your company. And don't hire

by boris 17y ago

This shows two important rules of running your own business very clearly: You need to understand every aspect of what's going on in your company. And don't hire friends and relatives. Had the subject of this story kept at least some basic track of his financial position, I am sure he would have been able to flag the problem much earlier and probably avoid the disaster. Something basic like how much money comes in, goes out, what's owed to you and by you.

pg 17y ago
Another important rule: don't borrow money.
- asdlfj2sd33 17y ago
  Do you mean credit cards? In many places (like Germany) commercial banks are the main source of funding for businesses.
- joez 17y ago
  Borrowing money is usually the best option. That's the whole reason for having limited liability as it frees up entrepreneurs to take high risks for large rewards. Part of any entrepreneurs job is to assess risk and reward.
- bonsaitree 17y ago
  Some types of capital-intensive business models essentially require debt funding unless the founders are independently wealthy and/or are willing to trade equity for VC funding. A classic example is starting/owning a restaurant or bakery.
  - Shooter 17y ago
    Not necessarily true. I've helped several friends with less than US$1000 in startup funds open restaurants/bakeries...within 2 years of when they started out to do so. Ego, lack of creativity, and laziness are among the only impediments to starting most businesses. You just have to want the end result bad enough that you are willing to work hard on a smaller scale until you can fund your dream. (You can work as a caterer, personal chef, food delivery service, and/or sell your food on consignment at other locations to raise the funds for your own place. MANY restaurants will let you borrow their kitchens for 'free' in exchange for cleaning up or for doing prep work or cooking specialty items. Some may want you to cover the increased insurance risk, but you can still get started in a licensed facility for a small cash outlay. Most independent restauranteurs understand what it is like to start a new food-related business, and many are likely to help you out unless you're an ass or a direct competitor. Then, you can just build up a base of customers and cash until you can buy or lease your own place. If you have good products, and are smart with your cash, it doesn't actually take too long to get enough of a bankroll to go out on your own. It took one of my friends only 11 months as a 'virtual cupcake consignment company' to MAKE the funds she needed to open her own bakery, and she even bought her real estate outright.) Side note: One of the ladies I assisted in starting her own bakery ended up closing it and going back to bakery consignment and catering because it was less stressful and more lucrative for her than retail. Some of these "ramp up" businesses may be better in the long run than actually owning your own retail/restaurant space.
- nostrademons 17y ago
  And if you do, do it under the corporation's name so you aren't personally liable for the debts if it fails.
  - dmix 17y ago
    Well I hope that is obvious for any type of professional investment. Although my account tells me you are never fully protected from personal liability by setting up a corporation. The court system always has some leeway.
  - apowell 17y ago
    I believe it is nearly impossible for a small business to borrow money without a personal guarantee or collateral.
    - mynameishere 17y ago
      And that's why you plow every spare penny into the retirement account. http://en.wikipedia.org/wiki/Individual_Retirement_Account#Bankruptcy_status http://en.wikipedia.org/wiki/Individual_Retirement_Account#B...
- TriinT 17y ago
  It should be: "don't borrow money, unless you really have to". Try to start a laser / semiconductor / biotech company without borrowing money...
  - adharmad 17y ago
    Knowledge and technical knowhow about lazer/semiconductor/biotech fields is not cheap/easy. You are involved either as a researcher, teacher or student working on a phd in those fields. If that is the case, corporate funding for your research (assuming it is going somewhere) is fairly easy to obtain. Also, if your standing in the field is good, and you can articulate your ideas/goals well, angel funding should also be obtainable without much trouble. In both cases, you are not borrowing money which you have to pay back someday. It is others who are taking a risk funding your ideas. If the risk is good, they get returns, otherwise its their money down the drain. And unless you commit some sort of fraud (embezzle the money as opposed to using it for real product research), you cannot be sued.
  - pg 17y ago
    That sort of company would raise money by selling stock, not through debt. Until it was big enough that it could secure debt with something other than the founders' houses, anyway.
    - TriinT 17y ago
      What I meant to say was that a capital-intensive startup would need venture capital to take off, but in that case the VCs would own the company. The founders would not exactly go into debt. You're totally right. Going into debt is something one should definitely avoid.
      - billswift 17y ago
        I liked the book excerpt linked on HN last week and am currently reading Felix Dennis's "How to Get Rich". He places accepting venture capital as substantially worse than debt.
- quizbiz 17y ago
  Even if it means giving up controlling amounts of equity?
- DanielBMarkham 17y ago
  Borrowing money for manufacturing/construction-type businesses is fairly common. It's not unusual to have open orders that exceed your on-hand capital. It's also not unusual for such businesses to have seasonal cycles. If you only worked on what you had cash for you'd be at a competitive disadvantage to those who borrow. After all, spending money you haven't received yet is the basis of accrual accounting. Of course, I wouldn't borrow money on a web startup project. That's a whole nother can of worms. But that's not what his business was. Sounds like he got behind the power curve when he lost the discipline to run an accrual business. It takes a lot more attention to detail, which he didn't have, unfortunately.
lsc 17y ago
I would amend "Don't hire friends and relatives" to say "don't hire people you can't fire" - I've had good luck with friends and relatives; but I've only hired friends that do jobs that I know how to do (and thus I know how to judge) and I seem to be able to say 'this isn't working out' without loosing a friend. maybe "Don't hire people you are not willing and able to judge in an objective manner" would be better still.

by boris 17y ago

pg 17y ago

Another important rule: don't borrow money.

asdlfj2sd33 17y ago
Do you mean credit cards? In many places (like Germany) commercial banks are the main source of funding for businesses.
joez 17y ago
Borrowing money is usually the best option. That's the whole reason for having limited liability as it frees up entrepreneurs to take high risks for large rewards. Part of any entrepreneurs job is to assess risk and reward.
bonsaitree 17y ago
Some types of capital-intensive business models essentially require debt funding unless the founders are independently wealthy and/or are willing to trade equity for VC funding. A classic example is starting/owning a restaurant or bakery.
- Shooter 17y ago
  Not necessarily true. I've helped several friends with less than US$1000 in startup funds open restaurants/bakeries...within 2 years of when they started out to do so. Ego, lack of creativity, and laziness are among the only impediments to starting most businesses. You just have to want the end result bad enough that you are willing to work hard on a smaller scale until you can fund your dream. (You can work as a caterer, personal chef, food delivery service, and/or sell your food on consignment at other locations to raise the funds for your own place. MANY restaurants will let you borrow their kitchens for 'free' in exchange for cleaning up or for doing prep work or cooking specialty items. Some may want you to cover the increased insurance risk, but you can still get started in a licensed facility for a small cash outlay. Most independent restauranteurs understand what it is like to start a new food-related business, and many are likely to help you out unless you're an ass or a direct competitor. Then, you can just build up a base of customers and cash until you can buy or lease your own place. If you have good products, and are smart with your cash, it doesn't actually take too long to get enough of a bankroll to go out on your own. It took one of my friends only 11 months as a 'virtual cupcake consignment company' to MAKE the funds she needed to open her own bakery, and she even bought her real estate outright.) Side note: One of the ladies I assisted in starting her own bakery ended up closing it and going back to bakery consignment and catering because it was less stressful and more lucrative for her than retail. Some of these "ramp up" businesses may be better in the long run than actually owning your own retail/restaurant space.
nostrademons 17y ago
And if you do, do it under the corporation's name so you aren't personally liable for the debts if it fails.
- dmix 17y ago
  Well I hope that is obvious for any type of professional investment. Although my account tells me you are never fully protected from personal liability by setting up a corporation. The court system always has some leeway.
- apowell 17y ago
  I believe it is nearly impossible for a small business to borrow money without a personal guarantee or collateral.
  - mynameishere 17y ago
    And that's why you plow every spare penny into the retirement account. http://en.wikipedia.org/wiki/Individual_Retirement_Account#Bankruptcy_status http://en.wikipedia.org/wiki/Individual_Retirement_Account#B...
TriinT 17y ago
It should be: "don't borrow money, unless you really have to". Try to start a laser / semiconductor / biotech company without borrowing money...
- adharmad 17y ago
  Knowledge and technical knowhow about lazer/semiconductor/biotech fields is not cheap/easy. You are involved either as a researcher, teacher or student working on a phd in those fields. If that is the case, corporate funding for your research (assuming it is going somewhere) is fairly easy to obtain. Also, if your standing in the field is good, and you can articulate your ideas/goals well, angel funding should also be obtainable without much trouble. In both cases, you are not borrowing money which you have to pay back someday. It is others who are taking a risk funding your ideas. If the risk is good, they get returns, otherwise its their money down the drain. And unless you commit some sort of fraud (embezzle the money as opposed to using it for real product research), you cannot be sued.
- pg 17y ago
  That sort of company would raise money by selling stock, not through debt. Until it was big enough that it could secure debt with something other than the founders' houses, anyway.
  - TriinT 17y ago
    What I meant to say was that a capital-intensive startup would need venture capital to take off, but in that case the VCs would own the company. The founders would not exactly go into debt. You're totally right. Going into debt is something one should definitely avoid.
    - billswift 17y ago
      I liked the book excerpt linked on HN last week and am currently reading Felix Dennis's "How to Get Rich". He places accepting venture capital as substantially worse than debt.
quizbiz 17y ago
Even if it means giving up controlling amounts of equity?
DanielBMarkham 17y ago
Borrowing money for manufacturing/construction-type businesses is fairly common. It's not unusual to have open orders that exceed your on-hand capital. It's also not unusual for such businesses to have seasonal cycles. If you only worked on what you had cash for you'd be at a competitive disadvantage to those who borrow. After all, spending money you haven't received yet is the basis of accrual accounting. Of course, I wouldn't borrow money on a web startup project. That's a whole nother can of worms. But that's not what his business was. Sounds like he got behind the power curve when he lost the discipline to run an accrual business. It takes a lot more attention to detail, which he didn't have, unfortunately.

lsc 17y ago

I would amend "Don't hire friends and relatives" to say "don't hire people you can't fire" - I've had good luck with friends and relatives; but I've only hired friends that do jobs that I know how to do (and thus I know how to judge) and I seem to be able to say 'this isn't working out' without loosing a friend. maybe "Don't hire people you are not willing and able to judge in an objective manner" would be better still.