A new year brings a clean slate for many area. And for those who own a mortgage origination shop, it means the books from 2011 are closed. It is time to rededicate to running that business like a business.
Yet many typical small business owners are very apprehensive about their personal financial situations.
According to a survey from MassMutual, 77% of business owners said they stated their company so they could provide financially for their families.
But 28% said they are doing all they can to try and keep up with their business expenses and as a result, don't think too much about the future.
Tara Reynolds, corporate vice president of consumer and product marketing at MassMutual, said, “With help, business owners can look past the seemingly overwhelming day-to-day demands of running their businesses and establish and meet their long-term financial goals.”
The survey showed that many people realize they have to run their business properly, but have not taken the steps to do so.
For example, four in 10 said it is very important to know what their business is worth right now, but at the same time, 43% admitted to not having a valuation performed on their business in the past three years.
“Knowing and carefully tracking the value of their business is the key to keeping business owners in control of their own futures,” says Reynolds. “Those aware of their company's value can take steps to protect it from unexpected events—such as the death or illness of a partner—using it as the foundation for sound business, succession and estate plans. Working with a professional who is qualified to value businesses is a key first step to any long-term planning.”
Speaking of long-term planning, while 40% of the owners surveyed said they intend to retire at 66 or older, only a third have formal retirement income strategies in place that map out how to manage their income during retirement, and less than half are confident they are doing a good job of preparing financially for their retirement.
A separate survey by small business insurer Hiscox found entrepreneurs in a number of countries are still determined to succeed, even with all the headwinds they face.
Bronek Masojada, chief executive at Hiscox, said, “The strength and resilience of entrepreneurs continue to shine through. Every day, small and midsized businesses have to assess and manage a wide variety of risks at different levels of intensity. Our study highlights their concerns over threats from the global economic environment, which are often very hard to control or even predict. However, it also showed that they are optimistic and believe they can succeed despite this backdrop.”
On a worldwide basis, 43% said they have negative or no growth in revenue last year, but nearly half were optimistic about 2012 for their business. Only 26% were pessimistic while 27% were not sure.
This survey did find that 62% of respondents defined business success as affording a comfortable lifestyle. The average U.S. business owner worked 41 hours per week.
But 50% of U.S. owners who took the survey said the economic downturn had caused them greater stress.
On the other hand, Hiscox did find that 28% of the business owners surveyed said the crisis did make them more determined to succeed, while 29% declared it made them work more efficiently.
Having the financial capabilities to run the business is key in being able to keep the doors open. The Hiscox survey found that only 12% claimed financing for operations was easy to find.
Without financing, the business has to rely on cash flow to run smoothly.
A small business owner can have tons of loyal customers and be an expert at getting new business and still be kept awake at night with cash flow worries, noted Tage Tracy, co-author of “Cash Flow for Dummies.”
Business owners need to respect and understand financial statements. According to some surveys, 25% of businesses don't even maintain accounting records (let alone produce financial statements).
“The bottom line for small business owners is simple,” says Tracy. “If you don't make an effort to prepare, review, and completely understand your financial statements, then you need to ask yourself why you're in business in the first place. And this especially holds true for the statement of cash flows, because an abundance of invaluable information is available from this most commonly overlooked and mismanaged financial statement.”
Proper planning is essential to the launch, growth, management and ultimate success of your business as measured by the ability to generate profits and, just as important, to avoid running out of cash.
“Cash flow problems have a habit of sneaking up on a business, especially in a rocky economy. If a business is earning a profit, many business managers simply assume that cash flow is satisfactory. But even if profit is good, cash flow can be bad,” he said.
One of the most common reasons small businesses fail is that they lack adequate cash or capital, not only to survive difficult times, but also to prosper during growth opportunities, he said.
Businesses need to understand that the disbursement cycle (managing expenditures and cash payments to vendors, employees and other creditors) can be leveraged and managed to be a primary source of cash for your business.
“Invoke what's called the matching principle,” advised Tracy. “That is, similar to properly matching revenue and expenses to ensure that an accurate measurement of a business's profit or loss is obtained, you should be able to match cash inflows and outflows.”
Rather, he said, “Every business should strive to achieve a financial condition that ensures constant maintenance of adequate levels of both solvency—the ability to pay all just debts—and liquidity—the ability to quickly access cash to support business operations.”
Always think of CART, which he said stands for complete, accurate, reliable, and timely.
Your company's financial and accounting information system needs to produce complete, accurate, reliable, and timely financial information, reports, data, and so on, which management can use to make informed business decisions.
“When you have the proper systems in place and know what to look for, you can keep cash flowing, helping you to grow a successful business,” said Tracy.
