By Laurie Lonsdorf
Regional director, Michigan Small Business Development Center
During my 15 years working at the Michigan Small Business Development Center at Lansing Community College, my colleagues and I have helped thousands of small businesses at every stage of their business journeys. What we’ve observed are some common financial habits that distinguish thriving businesses from those that struggle — or worse yet, fail.
Thriving businesses start with a strong foundation because …
They are financially accountable.
That means knowing where the money is both coming from and going to and being willing to take responsibility for your financial decisions. The good news is you don’t have to be an expert to make this happen. It’s more about planning ahead, taking ownership and making informed choices rather than reacting to financial problems after they occur.
Thriving businesses are able to do this because …
They have financial systems in place.
You can’t run a small business on your bank account statements and card receipts alone. Without systems in place and the ability to access and analyze data, you’re flying blind with your business. The software brand you choose is less important than having a consistent financial system and reviewing the information regularly so you can make informed decisions. Every business needs an accounting/bookkeeping system, budgeting and cash-flow forecasting, and invoicing and payment tracking. It might be a single system or multiple systems, depending on the size of your business and industry.
Thriving businesses also operate proactively because …
They know their numbers.
Knowing your numbers gives you control. It means having a real-time, accurate understanding of the core financial and operational data that drive your small business. Instead of guessing how well your business is doing, you can use real information to make smarter decisions and improve profitability. You need to understand what the numbers are that signal trouble, define break-even and indicate healthy profitability. By implementing a financial dashboard or establishing a regular reporting process, you can consistently review key numbers, such as revenue, gross margin, expenses, profitability and cash position.
Thriving businesses can manage challenges because …
They are willing to take action.
You’ll be the first to know when you are financially struggling, and it’s critical to intervene early in the process to turn things around. That might include meeting with an SBDC consultant or another adviser for assistance. You also have to be willing to do what it takes to remedy the situation by raising prices, cutting inventory, narrowing product offerings, dropping unprofitable customers or improving collections, to name a few. On the flip side, you also will know when you can afford to invest, hire or grow your business.
When a small business embraces financial discipline, it’s setting itself up for opportunity, not simply avoiding failure. Remember, you don’t have to be a financial expert — you just have to be willing to be accountable, know your numbers and take action.
