What does it take to run a company?
The aspiring entrepreneurs among you may wonder, “What does it take to run a company?” No surprise there: Owning a business is a dream for many Americans. It’s estimated 99.9 percent of US employer firms are small businesses, 32.5 million in total.1 During a normal year more than 1 million new businesses will open in the US. And yet, more than 500,000 of those businesses will not survive five years.1 While everyone starts with a dream and the best of intent, building a business that endures is a significant challenge. Here are some basic tips for doing just that:
Pick a growth area
An uncertain economy is part of the reason small businesses don’t make it; another part is that some types of business may be more stable than others. Businesses like travel agencies and office supply stores are more frequently exposed to disruption and structural shifts. If you look to growth areas like shared services, healthcare, food and hospitality, technical consulting, and senior care, you’ll find that opportunities typically abound. If you’re starting from scratch, try limiting risk by narrowing down to a suitable growth area (for instance “shared services”) and a type of business with a higher probability to thrive (for example accounting and payroll services). Avoid a saturated market where you’ll be fighting an uphill battle.
While you should target a growth area for a leg up, don’t be afraid to study and learn from your competitors. A successful business is clearly doing something right. How to tackle this depends on business sector: if you’re a restauranteur it may be easy enough to find out why competing restaurants are popular and successful first-hand. In areas like healthcare or technical consulting you might need to work with a business professional and an accountant to examine not just what a competing business is presenting to the world but also what can be gleaned from its financial information.
Assess your financial personality
“Know thyself.” Speaking of finding the business that’s right for you, it will be helpful to evaluate your attitudes toward life, money, and financial decision making—after all these will have influence on your entrepreneurial success. Our research identified four major financial profiles among working Americans: Ambitious Spenders, Retirement Realists, Day-to-Day Decision-Makers, and Confident Planners. Each of these represents different habits, attitudes and approaches to finance. Knowing your own tendencies is invaluable for finding your footing.
For instance, many small business owners in America tend to be Ambitious Spenders2 — they struggle with work/life balance and hate to delay gratification, but still prioritize saving to grow their business and leave a legacy. Learn your personality type in our quiz.
Understand risks and rewards
Ambitious Spenders are also the personality that embraces the most financial risk, with 77% saying they’re willing to take on above-average risks to achieve above-average returns.2 Calculated risks can generate tremendous rewards. Growing your business may require taking a few chances, just remember to always ask “What’s the downside?” Being able to answer that question and prepare for the worst enables you to weigh whether a reward is worth the risk and make confident decisions.
Prioritize cash flow
Cash flow should be a top priority for your business — a healthy cash flow can help you weather many of the ups and downs you could face. You can create a forecast of anticipated payables and receivables to avoid unpleasant surprises. Make sure you’re enforcing realistic payment terms for customers, and work with suppliers to get favorable pricing and discounts.
Keep detailed records
Second only to cash flow, record keeping is key to a successful business. Your records show you where things stand financially and what challenges you may face. Similar to managing risks, spotting challenges in advance gives you time to prepare for overcoming them. Whether you keep a physical record, a record using cloud service or, as many successful businesses do, both, is up to you.
Protect against common risks
While you may be able to forecast and manage cash flow, you can’t forecast the unexpected. That’s why a small business can need big protection. That said, there are still some routine scenarios you can prepare for. Consider different types of disability income and life insurance policies to help safeguard your business in a worst-case scenario. Property insurance can be another key consideration, and liability insurance can help safeguard you from lawsuits.
Build the right culture
A sometimes-neglected key to victory is building a great team and environment. The most successful business owners and entrepreneurs have recognized that they should be surrounding themselves with people who specialize in the skills they lack — in other words, build a strong team. Similarly, a collaborative workplace environment where employees can unite behind a shared mission and values and build strong personal relationships creates a positive vision to progress toward. Help your team perform at their best and learn how to delegate effectively to others. It’s about creating a supportive network inside and outside your business.
Work with a professional
Continuously engaging professional development and working on skills around strategic planning, money management, and hiring is another habit of successful entrepreneurs. While it’s very exciting, starting a new business is also a major commitment of your time and money. Take it seriously and speak to a financial professional about how to get a positive return on your investment.
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2022-147711 Exp. 12/2024
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