Five features of successful small businesses

Let’s face it, running a small business is a hard slog. Keeping on top of sales, hiring, accounting, marketing and cashflow can easily become overwhelming. It’s no surprise that, according to the ABS, around 60 per cent of new Australian businesses wind up in the first three years of operation.

So what is the other 40 per cent doing right? How do they thrive in a competitive business environment?

Realists, not dreamers

Most small-business operators would admit to daydreaming from time to time about their company becoming a runaway success. But it is important to remain realistic about your ambitions. A business plan is crucial for helping to keep your feet firmly on the ground.

The plan should include:

• Goals, objectives and strategy.
• Financing options for the type of assets you need to buy or hold.
• A sales and marketing plan.
• Market conditions.
• Key assets plan – people and equipment.
• Financial forecasts including cashflow analysis.
• Company structure and organisation chart.

They plan their growth

Successful small businesses forecast the growth of their key financial variables to understand their business’ financial position and direction through a thorough understanding of:

• Balance sheet – understanding the business’ assets under management to be able to maximise their value and know the liabilities of the company and when these are due.
• Cashflow – to ensure the money coming into the business can cover the liabilities as and when they fall due.
• Non-current capital requirements – is the long-term funding position supported by the current financiers of the business or do you need to find new financiers to fund debtors, stock and fixed asset purchases?
• Daily or weekly working capital position – can the business pay wages, taxes and creditors on a week-to-week basis?

Invested in an accounting system

Many successful business owners wisely invest in financial systems that integrate their business operations with internal and external accounting systems to ensure the generation of timely and accurate financial statements on a monthly basis. This can spell the major difference between the success or failure of a business.

Ensuring that the company director and shareholders are meeting and reviewing these statements on a monthly basis is also crucial.

They offer terms to their customers that work for them

Business often have to provide credit to their customers. This can be based on the standard 30 days EOM. You should ensure that:

• You know who you are dealing with.
• Some level of credit analysis is conducted
• Business references are checked.

The terms you offer your customers also needs to be financed in some way, just like the purchase of other assets on the balance sheet. An appropriate level of finance can see you trade very successfully with creditors who offer short terms and, importantly, debtors who pay on or beyond your terms of trade.

Many successful businesses use either debtor finance or invoice finance/factoring or put up personal assets like their family home to secure finance. Debtor finance is definitely the least risky option.

Monitoring cashflow and bank accounts

Generally speaking, only certain authorised people should be accessing the company bank account. This would include directors and only the most trusted employees. Account drawdowns should always require authorisation from a director.

Many businesses have allowed employees to access the company bank account to the peril of the business cashflow. Importantly, the monitoring of cashflow should be done on a daily or weekly basis with a sufficient financial model enabling the director/s to ensure that any shortages in cashflow are foreseen so that adequate working capital can be provided to the business at the required time.

Greg Charlwood, Managing Director, Australian Invoice Finance