There are many steps small business owners can take to ensure your company is set for long-term success. First and foremost, as an owner, create a business plan. The process of putting together this plan makes you work through the fundamentals of a viable business, including how it will maintain financial stability.
A business plan details what you’re going to sell/provide, how you’re going to sell/provide it, why there is demand for what you’re selling/providing, how you’re going to out-maneuver your competitors, and how much money you intend to finance, earn and reinvest. It also establishes the milestones you aim to achieve and the overall timeframe for doing so.
Unfortunately, many companies float along rudderless because the owners lack the motivation or discipline to create the business plan. The process of developing the plan can be intimidating, and if you’re routinely scrambling to put out fires, it becomes a low priority. However, keep in mind that without a plan, it’s nearly impossible to borrow from a bank or get buy-in from investors.
To start, resolve to build or update your business plan this year. Like any daunting task, crafting your strategy is much easier when you break it down into manageable pieces. A great tool to help you do this is the Small Business Administration’s online business plan builder: https://www.sba.gov/tools/business-plan/1. You simply create a login and start your plan. Complete the easiest parts first, and that will give you confidence to complete the more challenging aspects later. You can save your plan as you go, and the SBA will save your information for six months after your last login date.
As you shape your plan, you will need to outline bookkeeping processes and provide statements for cash flow projections, as well as your profits and losses (P&L). Your bank can help you with these. Many banks have SBA loan experts, who provide this type of assistance. You can also get free help from an SBA resource partner such as SCORE, a Small Business Development Center (SBDC), or a Women's Business Center (WBC).
Once you have your business plan, you’re ready to start the loan process. Some practices work better than others for small businesses. We recommend that small business owners stick to equity financing over debt financing. Equity financing enables businesses to obtain loans without incurring additional debt.
Before approving a loan, your financial institutions will want a record of the equity within your business. Equity holdings can include real estate, vehicles, equipment, inventory and more. Equity assures your bank that you can repay the loan, even if the business fails. Banks will also consider your company’s credit score, equity contribution and loan-to-value ratio before lending.
Additionally, a lender will want to see that you have invested your own money in your business. Investment expert Warren Buffet refers to this as “skin in the game.”
Weigh all borrowing decisions carefully. It’s important to be lean on fixed assets, and study up on financial statements and the risks that can come along with borrowing. Get expert advice from your bank and/or an SBA lender before being tied to any financial decisions.
This blog originally appeared on the Memphis Chamber's Small Business Council Big Ideas blog: http://www.memphischamber.com/Newsroom/SBC-BIG-IDEAS/June-2017/Ensuring-Your-Small-Business-is-Fiscally-Fit-for-L