Small Business Success - Know Your Numbers

Pennsylvania is a great state for small businesses, start-ups, and entrepreneurs. But without a competent accountant or CPA, many of those businesses are likely to fail. According to the Bureau of Labor Statistics (BLS), approximately 20% of new businesses fail within the first two years, 45% within five years, and 65% within 10 years. Only 25% of small businesses make it to 15 years or more. 

These BLS numbers would be very sobering to your clients who are entrepreneurs or small business owners. Take the time to educate them about this, help set them up for success through strong business and accounting practices, and you will win many loyal clients for years to come.

If the company is already in business, review your client’s business strategy and financing. A few common mistakes that spell early demise for most small businesses include:

• Insufficient investigation of the market and product demand

• Insufficient funding

• Incomplete or non-existent business plan

• Poor pricing 

It’s important that the client engage in a careful analysis of the market to determine if the company’s products or services fulfill a real need. This is sometimes best performed by a market research firm. Such an analysis may offer your client insight into ways to adjust the company’s offerings to ensure future sales.

If your client did not secure sufficient funding to make it through the start-up period, help him or her find alternative funding sources. 

Evaluate and provide advice on your client’s business plan. A proper business plan should include achievable goals; a strategy to meet those goals with an actionable timeline; potential problems that may arise; and tactics to overcome those problems. It should clearly define the products or services and the market for the products or services. It should also include a detailed understanding of costs associated with the products or services as well as the costs of running the business.

Poor pricing is often a product of insufficient market research and/or an incomplete business plan. Helping your client more accurately evaluate expenses for each product or service will provide you with the data to determine an appropriate price point and the necessary sales goals to reach a healthy profit margin. 

A small business should evaluate its strengths, weaknesses, opportunities, and threats, often referred to as a SWOT analysis. This will include store location and/or online presence, marketing strategies, and ideal client analysis, as well as financial strengths and weaknesses, which is where your expertise will be invaluable.

Your clients will need your services to monitor important metrics in order to beat the odds and grow into the future. One of the most critical issues for small businesses is cash flow. Ideally, small businesses should have the equivalent of two months’ worth of business expenses in the bank in order to pay bills during a lean month. But many small businesses start out with too little money, poor pricing, and an overly optimistic expectation of sales, leaving them short of cash. To compound the problem, small companies often have poor bookkeeping procedures, including forgetting to invoice or not collecting accounts receivable in a timely manner. Cash flow analysis will highlight the specific causes so that appropriate actions can be taken to plug the holes and maintain a healthy cash position.

Your client should also know the profit margin for each client, product, or project. This data will inform your client’s future decisions on the ideal clients, products, and projects to pursue and those to avoid, thus improving their profit margin.

All this information should be automated through robust bookkeeping, job costing, and project managing software. Encourage your client to invest in these programs. In today’s business world, they are not optional overhead expenses that can be trimmed to cut costs. They are essential for providing you and your client with the necessary data to make sound business decisions.

Many of your small business clients are passionate about the products or services they offer but have not taken the time to build right, from the ground up. Now that tax season is over, call a few clients who may have struggled last year and offer to help them determine how to do better this year. Also, reach out to those small business and entrepreneur clients who had banner years and offer to help them strategize to make future years just as successful.