Every small business has its unique set of opportunities and challenges. Taking opportunities seems easy, but is often difficult to do. There’s often hesitation in the perceived or real risks involved. If there were no risks, we would take every opportunity!
Managing our response to risk is the key in opening ourselves to more opportunities. From a financial perspective, there are five common concerns small business owners face:
- Cash is king!
Most small business owners think in terms of cash, not profits. A shrinking cash balance is a concern, but what you really need to watch is the profits. A low cash balance can simply mean you’ve made a large purchase order or are undergoing a seasonal downturn.
It’s important to understand if a reducing cash balance is something to worry about. Review your financial statement monthly or quarterly, with some level of business acumen. If you aren’t confident in interpreting the information, seek help from an accountant or adviser.
- Financial security
This is often the long term worry of small business owners. Essentially you want to have secure income to support your lifestyle. It’s a genuine concern that keeps you motivated to succeed.
However, if this worry is doing more harm than good, then it needs to be addressed. One way of reducing this form of stress is ensuring that your business is structured correctly. Take profits out during good times to invest and ensure you have appropriate insurance policies in place.
- Staff
Small businesses rely on good staff. Motivated staff members will want to work hard for an owner they respect. Treating staff well is important. However, it is a trap to be too lenient with staff. Understanding the expectations and motivations of staff and management is critical to success and longevity.
If one staff member is underperforming, others may have to carry the weight. An owner then risks losing key team members, as they tire of covering for the poor work ethic of their colleague. Regularly changing staff can put a big strain on any business. Do your background checks and use a trial period for better assessment of new staff.
- Customers
Like staff, customers are a crucial part of business. Most small business owners understand that it’s the customer who generates income for the business. Therefore, every aspect of the customer equation is a key focus area. Where possible businesses should diversify, reaching out to more clients and different groups of clients so the business has multiple income streams.
- Paying the bills
This is intrinsically linked to cash and financial security. Bills in all businesses are either linked to variable – such as purchases – or fixed costs. Variable costs will be higher when stock levels are increasing, and as a strategy for growth to meet demand shouldn’t be a concern.
Fixed costs are the same no matter the turnover of the business. If you are not able to pay the bills you need to understand why and make informed decisions. Seek advice from your accountant or adviser to understand what the problem is. Knowing which lever to pull will alleviate a lot of the anxiety.
Brendan Campbell, Associate Director, Prosperity Advisers Group
