A small business does not have the resources as a big business, so it has to do things differently. Typically it does not have the human resources therefore each person needs to wear many hats, especially the owners and/or management team. Within major companies there are different departments and segments of operations, many times a small business only has one department of which there are personal to do those functions and different people do the same function based on availability.
Also, cash resources are not the same. Cash is required for sustainability and growth. In fact without cash it is almost impossible to grow. I have seen many companies try to grow on their existing cash reserves and fail because they run out of cash. Most of the reasons why it takes cash to grow is because the cash from the growth always follows the expenses (cash outflow). We need to spend the cash first and the cross our figures that the additional revenue that was projected follows. If it doesn’t then, back to the drawing board.
Growth needs to be planned, managed and monitored. It has to be budgeted for. Companies typically go out of business, not because they do not have enough business but because they run out of cash. Additional marketing, inventory, human and other resources such as equipment and space may be required. In inflationary times, cost of products and services increase and also put a strain on the cash supply.
Most of the small companies are structured as Subchapter (S) Corporations. This means that the stockholders are directly responsible for the taxes on the profits of the business in proportion to their percent ownership. They take cash out of the business, usually through a combination of wages and distributions. From the distribution side, the stockholders are pulling cash out for their own personal needs. Not a problem unless they are draining the company’s cash to support their own lifestyle and ultimately, the company then becomes strapped for cash. These distributions are usually spent by the owners and when tax time shows up and they have to pay tax on the profits of the business, they are again short of cash. Therefore, another distribution from the company’s profits to pay for their personal liability to the government. This becomes routine and although the business is viable and very profitable, it runs out of cash to continue.
Owners, response is, “we just need to increase our business”. WOW. The realization really does not hit home because there is no accountability and responsibility. They allow their personal expenses to suck life out of the business.
Be smart and keep the business a business and the personal life personal.
For more information and help to grow your company contact The Shnider Group at nshnider@theshnidergroup.com or call Neil Shnider at (614) 582-0108 for more strategy and growth information and tools. Neil Shnider, MBA, CPA, CVA is a special projects consultant that focuses on organizational growth through finding new markets and new products/services, increasing revenues and trimming costs.
“We help companies increase revenue, reduce costs and improve cash flow”.
