Timely financial advice is critical for a company to sustain operations when revenue growth stalls
Whether through the loss of key accounts or business slumps tied to economic downturns, small business owners need to take actions that will keep their businesses going until new customers are found or the economy recovers.
The best expert advice for small business owners to weather these challenges is to be decisive about changes and to do them as part of a financial plan.
A financial plan for a small business is a road map, beginning with the company’s financial statement which includes the income statement, balance sheet, and financial projections based on up-to-date accounting and bookkeeping. From there, reports serve as tools for the better management of a small business.
When experiencing slowing business growth, the small business owner should pay special attention to the company’s financial condition. They should specifically be concerned that there is healthy cash flow reflected in their periodic cash flow statements.
Cash flow projections are the primary tool to do this as they will indicate if future cash levels are sufficient to support operations or if funding is needed while new business is developed.
The Importance of Financial Planning and Use of Financial Reports
Whether a startup or a well-established business, knowing how cash is being generated and consumed is very important. The business expression “Cash Is King” reflects the critical importance of cash flow management in achieving a sustainable business model. It simply sums up the circumstance that without the necessary cash to execute business operations, nothing else really matters.
When assessing a business’ cash position, loans such as committed credit lines are included because the bank gives companies access to funds on demand—providing liquidity to meet short term payables or financial obligations.
Positions in a Small Business to Handle Financial Reports
While the mission of business owners is to deliver quality products or services, many, however, who are highly skilled in building a business often lack the necessary background to make financial decisions—which are critical for a growing business.
They succeed by accepting professional advice from those who specialize in financial matters when making an important business decision. Professionals can be used for accounting and finance and should be able to prepare and interpret cash flow projections as well as create timely reports.
Depending upon the size of the business the financial role may be handled for a period of time by a part-time or full-time employee or contractor, a financial consultant, a bookkeeper, a controller or a chief financial officer.
While many owners may do their own bookkeeping to save money, once the company begins to grow financial management is one of the easier areas to delegate or outsoure. However, since tax reporting is typically required for small businesses, the owner should establish a relationship with a professional accountant.
External Resources that Help a Small Business when Sales slow
As the company begins to prosper and the financial area of the company formalizes, the small business owner should set up financial goals and allocate time to establish a relationship at their local bank or explore other funding opportunities.
Investing in those relationships early-on allows the owner to gain insight as to what will be needed by the bank if they seek a business loan. Bank lines of credit provide timely help to address periods when cash levels are low. Accounts receivable financing and factoring should be explored.
As the business finances struggle to revive while pursuing new sales, it is very helpful to know as cash reserves dwindle the shortfall can be promptly addressed with bank funds.
Simply put, financial relationships with alternative sources of funding established during good times are easier to tap into when there are difficult times and financial risks are greater.
How to Cut Costs while Re-building Sales
A good financial plan as part of an overall business plan goes hand-in-hand with business operations. It identifies where flexibility exists to counter the impact of a slowing economy or the loss of clients. Timely cutting of monthly business expenses is a critical step in giving the company sufficient time to adapt and set future goals.
Cost cutting of operating expenses should be a deliberative process. It is important that making operational changes to save cash are undertaken to have the least impact on delivering products or services.
Panicked or indiscriminate cutting are common mistakes that may lead to the dismantling of the necessary organizational structure or loss of key employees that may impact customers and take a very long time to re-build or re-place.
Long-term success amounts to a balancing act that the business owner must navigate through that requires the best information. The financial plan is key and outside financial advisors or financial planners may be needed.
Relying upon a financial expert is foundational to sound decision-making to achieve business goals and to avoid costly mistakes. Their business skills are an excellent resource for steering a company back to financial health that other businesses less structured and less prepared are unable to do.
Jeanne is the Founder and Publisher of American Entrepreneurship Today, a web site dedicated to helping entrepreneurs and small business owners to succeed. She also hosts the podcast series Experienced Voices, a platform for interviewing highly successful people open to sharing what was key to their success. She is the founder of AEP LLC., where as a growth strategist she steers entrepreneurs and small businesses past the challenges and pitfalls of starting and growing their businesses. She previously built a display business in the cosmetics industry and a nationwide tech services company.
