I learned the word “entrepreneur” while in elementary school and since that day have been enamored with how businesses work. I chose accounting as my field of study and pursued Public Accounting as a profession to learn as much as I could about how small and mid-sized business find success.
After years of studying financial statements (both good and bad) and small business owners (both good and bad), I’ve come up with 5 keys for you as you start or improve your small business in 2012.
1. Have a Plan, Think It All Through
Small businesses fail for two primary reasons. First, a failure to cover all of the bases that you have control over. You have a great idea, dive headfirst, sink some cash into the business, and BAM – something unexpected presents itself and rocks your boat… hard. Obviously there will be things you won’t be able to control that crop up: that’s life.
Patience in the beginning will pay dividends later on. Write it all down and draw it all out, because having it on paper might cause you to see it in a different light. Don’t just dive in with the “wing it” strategy, hoping to figure it out as you go. As much as we want to believe that we’ll rise to the occasion, it’s really just a recipe for unnecessary stress.
Sit down with an accountant and put together realistic projected financial statements. Map out a budget, what your cash flows will look like, what your balance sheet and profit/loss should be at various time checkpoints. Most entrepreneurs hate accounting, but if you don’t plan it all out ahead of time how will you measure your progress?
2. Start With Enough Cash
The second reason small businesses fail early on is lack of adequate start-up capital. Small and/or struggling businesses are forever blaming cash flow. Cash flow problems simply mean either 1) you started with too little cash to do the job or 2) you’re not making enough at the job you’re doing. Cash is king and if you don’t have enough to start, it is mathematically impossible to borrow or spend your way into prosperity.
Don’t quit your day job and leap into this if you’re not ready. If you borrow too much up front (especially from family and friends) it will put so much pressure on you to succeed that it could negatively affect both your business decisions and your sanity. If you have a job and you’re thinking about quitting to start your own business, read Quitter by Jon Acuff first; he will encourage you in all the right ways, for all the right reasons.
3. Make a Sale!
Instead of tweaking your business plan for the fifty-seventh time this week, pick up the phone and make three new contacts with potential customers. Go meet with some decision makers and put a sale on the books. If you’re trying to secure capital from an investor or a bank, having sales orders can solve some of the biggest question marks about your business plan.
The goal of the investor/lender is to get their money back plus a return on investment. The first step to that ROI is you making a sale. Instead of touching up the the wording on how you’re going to pay back that seed capital, book a sale and show the lender how it’s done! Who knows, maybe you’ll make enough profit waiting on the lender to decide that you won’t need them anymore.
4. Hire Smartly
Employees? Who’s talking about employees? You wouldn’t hire an employee who was just chasing a paycheck and was only going to put in the minimum amount of effort, while sighing heavily every time you gave them work. Interview your bankers, accountants, and attorneys as if you were hiring them to be employees. After all, they really do work for you!
Your professional team must understand your vision and be motivated to help you succeed. Of course they need to be qualified to provide you with the service you’re buying, but remember that not all accountants, not all bankers are created equally. Don’t be afraid to ask tough questions and interview them as much as they interview you to ensure that the relationship is a good use of both parties’ time and resources. Hire a team of professionals that can teach you and add strength to your business.
5. Have Confidence
If you’ve checked off items 1-4, you’ve got yourself a legitimate small business. You’re working a plan, with a checking account balance that lets you sleep at night. You’re making sales and you have a team of professionals making you better.
Take a deep breath and start the list over from the start, and this time sing with confidence. Review your plan, review your financials, get advice from your team, make adjustments as needed. Build up cash so you can grow your business without debt. Ask for feedback from everyone; ask your mentors, professional team, employees, and your best customers for tips on how to improve.
Make 2012 the year you break loose and take it to another level.