There are no certainties when it comes to business cycles, and no amount of guesswork will protect the small business owner from the ups and downs of a changing economy. There are, however, fundamental steps you can take to minimize disruptions from increasing prices, changing consumer habits, growing operating risks, competition and fraud.
10 Critical Areas to Achieve Business Success
These ten critical area are important for the growth and continuity of your business and apply to most phases of the business cycle. Although ten issues are identified, the list is not all inclusive, nor is it in priority order
1. Business Planning
A business begins with a clear definition of statement of a mission. The following are some important considerations when developing your plan.
- Gauge your market's potential size.
- Analyze industry statistics and competitive market data
- Identify potential promotional and advertising strategies
- Determine the economic climate with your market such as rising interest rates, increasing unemployment, etc.
- Confer with professional advisors, such as a CPA, attorney, insurance broker or lender
2. Financial Planning
Not only do you need to have funds available to grow the business, you must also efficiently manage those funds. Your business proposal should clearly outline your plans for growth or expansion. It's important to be prepared to articulate your objectives in running your business and be able to answer these questions.
- What type of loan should I get?
- What is the repayment plan best suited to my situation?
- What is the cash flow necessary for me to repay the loan?
- How will I use the loan proceeds?
- What type of collateral might I need to qualify for the loan?
- At the same time, you must consider cash flow management. This involves:
Forecasting, budgeting, receiving, controlling, disbursing and investing funds generated by your business's operations
Improving liquidity and increasing profits by increasing cash inflow; reducing cash outflow; and investing idle funds in higher yielding vehicles.
3. Marketing Your Business
Here are some ideas for promotional efforts to raise the visibility of your business.
- Look for new niche markets you can serve and customize your advertising to appeal to the special needs of prospects in each niche.
- Identify and respond to emerging trends.
- Raise your visibility in the geographic market in which your business operates by giving speeches at local business associations like the Chamber of Commerce or the Rotary Club and of couse, the internet local search.
- Create brochures or flyers to distribute in the town or city in which your business operates.
The proper structure for your business will impact its operating efficiency as well as determine the tax treatment.
Sole Proprietorship - A one-person business. All business income and losses are reported on your personal income tax return, and you are personally liable for any business obligations.
Partnership - A business owned by two or more people, each personally liable for any business debts or legal claims. In a partnership, you as a partner pay tax on your share of the business income on your personal income tax return.
Limited Partnerships - A partnership where the general partner is responsible for running the business and is liable for its debts. The limited partner has minimal business control and no exposure to business debts. This type of structure is taxed similar to a sole proprietorship or partnership if meeting certain criteria.
Limited Liability Companies - A business similar to corporations in that they provide limited personal liability for business debts and claims. But, the owners of an LLC pay taxes on their share of the business income on their personal tax returns, like partnerships.
C Corporations - A corporation where taxes on business profits are paid by the corporation. You and the other owners pay individual income tax only on money that is withdrawn from the corporation as salary, bonus or dividends.
S Corporations - A corporation where all business profits "pass through" to the owners who report them on their personal tax returns, such as with a sole proprietorship, partnership or LLC.
5. Managing Business Risk
Risk management involves protecting yourself against potential loss or less than expected return. A tool typically used to manage risk is insurance, including:
It is critical to have periodic appraisals done of your business by a CPA and insurance agent skilled in this area.
6. Managing Your Workforce
As a business owner, it is important to set a philosophy and standards of performance and clearly communicate them to your employees. Some practices to put in place include a time recording system, a new employee orientation program, training program that includes policies and procedures dealing with internal controls, and a performance measurement system.
Monitoring your employee's performance and providing regular evaluations based on a consistent set of standards will put any employee on notice about his or her performance if it is less that desired. It is also critical to document your discussions in the event of legal issues.
7. Leveraging Technology
Moore' Law states that the processing speed of computers will double every 18 months, so it pays to make sure technology serves the needs of your business. As an added incentive to leverage new technologies, the federal government currently allows businesses to write off significant costs for new equipment purchases under section 179 and/or bonus depreciation. This applies even if the equipment is financed by debt.
If you have limited capital and are concerned about the rapid changes in technology, you may want to consider leasing. Leasing technology equipment allows you to expense the equipment rather than purchase a depreciable asset, all the while freeing up your capital to purchase additional PC's or other critical assets.
8. Succession Planning
More than 70% of family-owned businesses do not survive the transition from founder to second generation. In most cases, the "killers" are taxes, management or family discord. These are issues that a good family business succession plan will cover. In developing a succession plan, consider:
- Transferring management to one person whether your child or a non-family member.
- Transferring equal shares of business ownership to family and non-familty members.
- Planning ahead a minimum of five years is recommended to determine whether there is any interest in continuing the business on the part of family members.
- Developing strategies for minimizing taxes upon your death so that business assets do not need to be liquidated to pay any estate tax liability.
9. Protecting Against Fraud
As a result of the increasing use of technology, businesses now more that ever need to take steps to protect themselves against fraudulent activity ranging from identity theft - such as stolen bank account numbers - to the illegal generation of documents as a sales invoices, purchase orders and bank statements. It's a good idea to conduct periodic audits of operations, processes and accounting procedures to ensure the proper functioning of all controls and to uncover any irregularities. Therefore, make sure to:
Check your credit report on a periodic basis to see if there are any warning signs.
Install proper firewalls, virus protection and encryption for your business computer system.
Shred all unnecessary financial documents.
10. Using Professional Advisors
Okay, as a CPA call me biased here but choosing the right professional advisors is critical in reaching business goals. CPA's are widely used by many types of companies because of their financial expertise and knowledge of how businesses can be managed profitably and positioned for growth. Equally important an attorney understands the issues concerning the legal structure of your business, contractual arrangements with suppliers and distributors, leases and litigation protection.
Whether you are looking for a CPA or an attorney, here are some screening questions to ask:
- How long have they been practicing?
- Can they provide references?
- What is their expertise level with your type of business?
- How are their fees determined?
- How much time will they need to handle the service and when can they begin?
- You should also establish a strong working relationship with your lender so that you can get the financing you need to establish or expand your business.
As a business owner, your time may be better spent focusing on the business's core purpose rather than financial and operational issues. Working closely with your CPA throughout your business life cycle may help you realize your dreams of business success. Therefore, if you are not already one of our clients, but want to schedule a consultation with us to see what we can do for you, please contact me