The Best Financial Advice for Small Business Owners When Sales Slow

Whether through the loss of key accounts or a downturn in the business cycle, small business owners need to take actions that will keep their businesses going until new customers are found or the economy recovers. The best advice for small business owners to weather these challenges is to be decisive about making changes and to do them as part of a financial plan.

A financial plan for a small business begins with the income statement and balance sheet based on up to date accounting and bookkeeping. From there reports serve as tools for the better management of the business.

When experiencing slowing growth, the small business owner should give special attention to the company’s financial condition, specifically cash levels looking forward. Cash flow projections are the primary tool to do this as they will indicate if future cash levels are sufficient to support operations or is some type of funding is needed.

Whether a startup or a well-established business, it is important to know how cash is being generated and consumed. The business expression “Cash Is king” reflects the critical importance of cash in having a sustainable business. It simply sums up the circumstance that without the necessary cash to execute business operations, nothing else really matters. When assessing a business’ cash levels, loans such as committed credit lines are included because the bank credit lines give companies cash on demand — -providing liquidity to meet short term payables or obligations.

While the mission of business owners is to deliver quality products or services, many, however, who are highly skilled in building a business often lack the necessary financial background critical for a growing business. They succeed by accepting financial advice from those who specialize in accounting and finance and are able to prepare and interpret cash flow projections.

Depending upon the size of the business the financial role may be handled via a part-time or full time employee or contractor, a financial consultant, a bookkeeper, a controller or a chief financial officer. While many startups may do their own bookkeeping to save money, once the company begins to grow the financial function is one of the easier areas to delegate to a specialist that frees up an owner’s time.

As the company begins to prosper and the financial area of the company formalizes, the small business owner should allocate time to establish a relationship at their local bank or other sources of funding. Investing in those relationships early-on allows the owner to gain insight as to what will be needed by the bank if they seek a loan. As the business struggles to revive while finding new sales, it is very helpful to know that a cash shortfall could be promptly addressed with bank funds. Simply put, relationships established during good times are easier to tap into when there are difficult times.

A good financial plan goes hand-in-hand with business operations, serving to identify where flexibility exists to counter the impact of a slowing economy or the loss of clients. Timely cost cutting is a critical step in giving the company sufficient time to recover.

Cost cutting should be a deliberative process in making operational changes to save cash, so that cuts have the least impact on delivering products or services. Panicked or indiscriminate cutting may lead to the dismantling of critical operational infrastructure or loss of key employees that may take very long to re-build or re-place. This is a balancing act that the business owner must navigate through that requires the best information and the financial plan is key. That Insight is foundational to sound decision making that helps steer a company to a safe place that other businesses less structured and less prepared often fail to reach.

Jeanne is the Publisher of American Entrepreneurship Today, a web site dedicated to helping entrepreneurs and small business owners to succeed. She consults via AEP LLC., as a growth strategist, steering entrepreneurs through start up pitfalls, while identifying resources and opportunities that catalyze a venture to a greater level of success.

Copyright AEP LLC 2020

Originally published at https://www.americanentrepreneurship.com