As someone who’s worked with talented and passionate entrepreneurs for more than 20 years, I’ve found that many small business pitfalls can be avoided when five simple tips are understood. These financial tips can apply to any situation, and I’ve seen them bring business owners success many times over.
1. Know where you’re going. Don’t sacrifice your ability to grow tomorrow by solving today’s problem. Make sure you’re setting business goals for the future as well as the present by asking yourself long-term questions. Are you set up properly with capital for this growth? Is your debt structured to help you expand without limitations? For example, many businesses are set up on short-term loans, which have high monthly payments and use up valuable operating capital. This hinders saving for a down payment on a building or opening a second location because capital is tied up. Small Business Administration (SBA) loans provide long-term financing options with plenty of capital for growth.
2. Build a network of contacts. Just like you don’t have to reinvent the wheel, you don’t need to know everything if you connect with the right experts when you need guidance. Key contacts include an accountant, lender, fellow business owners and a lawyer. Businesses are different, but they share the same challenges: finding good employees, receiving sound financial advice, giving up control to others, etc. It’s helpful to join a group of business owners – even if they’re not in the same industry – to receive guidance. For example, the Paycheck Protection Program (PPP) can be hard to navigate, but if you have good contacts in place, they’ll point you in the right direction.
3. Keep financial information current. It’s challenging to make financial decisions for your business, but you’ll do yourself a big favor by starting with updated financial information. Not only does this save time and frustration, it also serves as a guardrail against decisions that could trigger negative long-term effects for your business.
4. Remember that liquidity is fuel for growth. Many business owners don’t have capital to withstand unforeseen situations, so making sure you have proper liquidity is essential to withstand challenges outside your control. You wouldn't drive your car to an unknown destination with it low on fuel. Don’t operate your business with a low tank of liquidity because it can be difficult to recover. For example, what if your top customer files for bankruptcy and can’t pay you? Do you have liquidity to overcome that?
5. Don’t wait for a problem. Being proactive allows you to be in control of your business instead of your business controlling you. At least once a year, assess your business by asking if you’re where you need to be. Many business owners wear so many hats that it’s hard to see issues until it’s too late. Take time to step away from your day-to-day operations to assess your past, present and future.
Itzel Meador serves as the SBA regional manager for Simmons Bank, overseeing SBA loan production and customer experience across the company’s seven-state footprint.