by Jennifer Deamud
It is critical for small business owners to keep their business in motion. If you own a business or are in a management role, there are numerous ways to keep your business on a growing path. Begin by ensuring the following aspects are fulfilled for continued growing success in your business venture.
Understand your financials.
Small business owners often leave the understanding of their financials to their accountant. This leaves the business owner or manager with limited opportunity to ensure the business maximizes its growing potential. The three biggest opportunities to keep a business financially in motion are proper budgeting and forecasting, knowing the break-even point and analyzing the company’s ratios.
These areas help the small business owner meet the challenge to not only maintain the business, but also propel the business into a solid financial growth strategy.
Budgets and forecasts help develop a business model, review key assumptions and identify resources and capital needs. They are also used as a management tool that establishes milestones and accountability. Budgets and forecasts help identify risks and establish benchmarks. This will help the small business owner make the necessary adjustments to manage risks, reach milestones and measure up to benchmarks.
Many business owners use the break-even point as a tool to enable them to plan for the future with a solid foundation. A break-even point allows a business owner or manager a very accurate projection of how many sales are needed, what is needed to achieve that level of sales and how a business can increase profitability by cutting expenses.
Most small business owners focus on the growth of their business rather than profitability. It’s natural to focus on growth, but profits are essential for any small business. Therefore, knowing the break-even point of a business is essential to the overall business operation and is the key to a strategic plan to increase long-term profitability.
Ratio analysis is a method to determine the overall financial condition of a small business. It puts the information from a financial statement into perspective and helps spot financial patterns that may threaten the health of a business.
Ratios are can be used to make comparisons between a business and other businesses in a given industry. For example, by comparing ratios, a business owner can indicate whether a business holds too much inventory or collects receivables too slowly. This comparison provides a window into ways a business can improve its operations. A variety of sources, including many trade or business associations and organizations, provide data for comparison purposes. They are also available from commercial services.
Keep a business moving by planning.
Business owners hear often enough that every small and large business needs to have a plan. Instead of burying a business plan in an office drawer like many business owners, a business needs to view the plan as a working document and as a tool for growth. In other words, it’s never finished. A well-communicated business plan allows management and investors to get on the same page and be ready for action. The business plan evaluates the opportunity, quantifies the resources required and lays out a strategic road map for implementation. It integrates all the functional elements of a small business—finance, marketing, sales, human resources, and operations—into a single cohesive force.
Customers move, so should a business.
Many experienced small business owners do not have a solid understanding of who will buy from them, or they assume that everyone is their customer. Assumptions like this might lead to misguided marketing plans and poor decisions. Small business owners can build a better, stronger business by identifying and serving their respective target market.
Successful small businesses understand that only a limited number of people will buy their product or service. The task then becomes how to determine who this group is, how to communicate with this audience and how to monitor their preferences. Customer groups continue to change their preferences; by monitoring customer desires, a small business can stay one step ahead of the competition.
In summary, a business owner (or management) needs to monitor several aspects of a small business continually if they want to keep a business in motion and on a viable path. It is sometimes easy for business owners to work in their business instead of working on their business. In order to succeed, business owners must find time to refine plans, understand financials, and target products/services to the most relevant audiences.
Jennifer M. Deamud is the Associate State Director of the Small Business Development Center located at Seidman College of Business, Grand Valley State University.
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