Far too many small businesses fail within the first five years – so how do you make sure yours is
one of the success stories?
Here are 5 important tips to help you grow a sustainable small business.
- – Cash is king
The number one reason SMEs go to the wall is that they run out of cash. So if you want to go to
the distance, it’s crucial that you monitor your cashflow.
Turnover does not equal profit – and profit on paper is meaningless if you can’t pay your bills
when they fall due.
There are lots of strategies you can use to boost your working capital, including:
· Organising short-term finance like an overdraft or business credit card to cover
shortfalls
· Controlling your stock levels to avoid tying up cash in excess inventor
Shaun McGowan from business loans website Lend says “Business owners should consider
using long-term finance instead of cash for asset purchases and always to negotiate with
finance providers and creditors to match payments to your cashflow”. - – Know your numbers
To run a successful business, you must keep a close eye on your financial performance,
including these key ratios:
· Profitability – what percentage of each sale is profit, once you’ve covered variable costs
like materials, transport and customer acquisition?
· Breakeven point – how many sales do you need to make to cover your fixed costs?
· Return on Capital Employed (ROCE) – this ratio (net profits/total assets) tells you how
much return you are making on the money invested in your business. Compare this to
how much you could make by investing that money elsewhere, to evaluate whether
your business is profitable enough to compensate for your time and effort.
Analyse your performance monthly, so you can spot problems early and take action to get back
on track. - – Value your people
Your business is only as good as the people in your team.
Fill any gaps in your skills with people who have those strengths – and who share your passion
and vision. Treat them with respect, reward their efforts well, and harness their skills to make
your business stronger. - – Safeguard your reputation
In today’s viral age, a bad review can spread like wildfire and permanently damage your
credibility.
The customer may not always be right – to be sustainable you need to pick your business
relationships with care and work with profitable clients who pay on time – but the customer
experience is vital.
Build and maintain a loyal customer base by having strong core values, and acting with
consistency and integrity at all times. - – Grow with caution
Not every opportunity will be worthwhile, so evaluate each new customer, sales channel or
acquisition before you leap in.
· Do you have the capacity to service a new customer without hiring more staff or
investing in new infrastructure? If not, will the profits cover your additional fixed costs?
· Will you still be able to provide the level of service upon which your reputation
depends?
· Does the opportunity fit with your long-term plans and strategic direction?
Cautious, steady growth is the key to long-term success and sustainability.
