6 Steps to Protecting - and Growing - Revenue

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Published April 12, 2012

| FOXBusiness

A typical small business owner has a lot of things on his or her mind - not least of which is how to protect their revenue, particularly in a flailing economy.

But there are six steps small business owners can take to not only protect their revenue, but grow it, even in tough economic times, according to a new report by The Guardian Life Small Business Research Institute.

According to the report, the following six steps all characterize small business owners who saw revenue increases in 2011 over the prior two years – in other words those who successfully weathered the recent economic storm:

No. 1: Be Prepared for Contingencies. This can include establishing credit lines and retaining cash reserves. Guardian found that 47% of higher-growth companies had cash reserves that enabled them to weather tough economic times, whereas only 35% of companies that just maintained their revenues were able to rely on such financial resources.

“Warren Buffet is successful because he knows he has to sell high and buy low ... really understand it’s an opportunity fund as much as it’s a disaster fund,” said John Krubski, research advisor to The Guardian Life Small Business Research Institute and founder and chairman of the International Thought Leadership Council.

How much should you squirrel away?

“The correct number to put aside is more than you feel comfortable doing,” Krubski said. “Anybody who’s smart would be putting at least 10 to 12% of their profit - not revenues - away somewhere to these contingencies and opportunities. ...It should be a painful amount.”

No. 2: Seek Advice from Professionals. Small business owners need to recognize that thinking they can handle their finances - or any aspect of their business - better than a trained professional may cost them success. Also, your best friends don’t always make the best financial advisors. But Krubski warns entrepreneurs to be wary of accountants who encourage you to pay the least amount of tax on your company’s income. By doing so, on paper your business makes less than it does in reality, which could hurt the company later on when trying to sell the business or obtain financing.

“What you really need is a professional who understands small businesses, in particular,” Krubski said. “Don’t try to do yourself what others can do better, especially when it comes to money. Small business owners are notoriously bad at handing cash.”

No. 3: Use Borrowed Funds Strategically.  These funds can be used for more than expansions. About 58% of higher-growth small business owners reported that investing borrowed funds in research and development yielded more returns than using that money to open new offices, build production facilities or add new capabilities/staff. On the other hand, expansion often correlated with a drop in sales.

“Improving the product - doing what’s best about the way you do business - that’s core. So it’s a win-win,” Krubski said.

No. 4: Sharpen Managerial Skills. Almost two out of three, or 63% of higher-growth owners said knowing how to hire the right people was important, whereas only 53% of revenue-declining businesses cited it as vital. So, educate yourself on how to be a good manager - that includes getting rid of employees who aren’t pulling their weight.

No. 5: Have a Clear Vision. Have a combination of long- and short-term vision extending at least 10 years in the future.

“If you’re changing your plans [in] less than 10 years, then you don’t really have a long-term vision,” Krubski said. Have a “central operating premise” for your business to help you build your vision for the future.

No. 6:  Avoid Obsessing about the Business.  According to the survey, successful small business owners tend not to be consumed by the companies they own and run. In fact, 75% of higher-growth small business owners said their businesses made it possible for them to have more satisfying experiences with their families, compared with 64% of revenue-declining company owners.

“The assumption is that people who run small businesses are overwhelmed and people eat, drink, sleep the business ... that’s not the case,” Krubski said. “Really successful small business owners tend to go fishing, they tend to do things with their families, they tend to do other things that [make] them better managers, and, ultimately, better small business people.”

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