The first few years are critical to getting your business off the ground. You’re devoting your energies to developing a quality service or product (or both) and to getting your name out there. You’re busy managing day-to-day activities and the ups and downs facing budding business owners.
Then your focus turns to what’s next. It’s a time when, as a business owner, you’re likely forced to come to terms with whether your venture is truly paying off – or whether it’s time to shift gears. Perhaps you’ve hit a plateau and feel stuck. It may seem as though you’re doing more than surviving but feel like you’re still not peaking.
No matter your struggle or your success, your entrepreneurial spirit dictates that you stay in it to win it.
So how do you take your business to the next level?
A Clear-Eyed Evaluation of Your Business
Before you can answer that question it’s a good idea to assess how far you’ve come and what it is that’s gotten you this far. That information will be helpful as you seek to identify what will help you move your business forward.
To help you gather this information, ask yourself these five questions below to evaluate how you’re running your business and how you’re doing as an owner. Some of the questions may reveal answers that surprise you, point out mistakes you didn’t even know you were making, and offer solutions you hadn’t even considered previously.
Just like in your personal life, you most likely had to decide where your business would reside. Would you rent or buy? Just as with deciding between a house or an apartment, renting and buying each have their advantages and disadvantages.
As we look at the pros and cons, it’s important to remember that you must consider conditions that are specific to your business and your market.
- Fixed Costs – Commercial real estate can be expensive; however, as your business grows, this option can be beneficial in the long run, especially with commercial mortgage rates continuing to hover near all-time lows. Securing a promising location and locking in a commercial mortgage long-term offers a fixed cost. You won’t have to worry about rent increases or what happens when your lease ends.
- Value Appreciation – Location is key for a business. So is research. It’s important to understand your market, to learn about your competitors, and to talk with your local Chamber of Commerce to learn about the business plans for the area’s future. If you’re able to buy in an up-and-coming area before the location takes off, your investment could grow exponentially. Realizing a huge profit might allow you to retire earlier than expected or reinvest in your business to grow it further.
- Tax Benefits – Like owning a home, owning commercial property has tax benefits for your business. Property improvements, maintenance, insurance, mortgage insurance, and annual depreciation are some of the tax deductions available to your business.
- Additional Income – If your space is large enough, you can rent out extra space, adding an additional source of income. And depending on what kind of business your tenant has, the traffic they generate could result in additional customers for you as well. Protect yourself by having an attorney review your lease. You should also work to negotiate what is placed in the lease as the responsibility of the tenant.
- Freedom to Renovate – Because it’s yours, you have the freedom to tailor the space to your business’s needs. While you may be able to make modifications to a rented space, doing so would likely require approval from your landlord. If you choose to lease any additional space you own, you can also place a build-out clause in the lease, making the lessee responsible for renovating expenses.
- Upfront Costs – Just like with buying a home, buying commercial property requires closing costs that will vary depending on the property and the size of the loan. You could also be faced with property-improvement costs. However, unlike your personal mortgage, you can deduct these expenses through your business. Make sure to speak with your accountant about writing off these expenses.
- Operating Costs – Your operating costs will be higher compared to renting as you take on the responsibility of your property, especially maintenance and repairs.
- Lack of Mobility – Owning property means you’re less mobile than if you were renting. You wouldn’t be able to move from one part of town to another as easily if your up-and-coming area turns into down-and-out.
- Prime Property – Location is more important for some businesses than others. If yours is one that demands a premium location, it’s often going to be more affordable to rent than buy.
- Free Up Working Capital – Even if your rent is equal to a potential mortgage payment, you’re still likely to be saving on maintenance costs, freeing up cash to support other parts of your business.
- Time – In addition to cost savings regarding maintenance and repairs, renting means you’ll be saving the time you’d be spending on that aspect of property ownership.
- Tax Benefit – Rent is a tax-deductible expense.
- No Equity – It’s simple. If you don’t own the property, you can’t profit from the property.
- Variable Costs – Rental rates are subject to annual increases, and if you need to break your lease for any reason, you may be facing a steep fee.
- A Forced Move – You’re at the mercy of your landlord, and if your landlord decides to rent the space to someone else, sell the property, or move in himself, you’re likely going to be forced to move and find a new location.
Chances are you know a lot more today than you did the day you cut the ribbon on your business. With that hard-earned knowledge comes the power to make better decisions.
Were the financial decisions you made when you were just getting started the right ones? Is it time to refinance your loans, take a new look at credit card options, speak to someone about merchant services or upgrade your card reader, outsource payroll, or even switch financial institutions?
- Review your rates. Can you refinance a loan to a lower rate? Or consolidate credit card debt to a lower rate? According to WalletHub.com, the average interest rate on a business credit card was 18.31% APR as of January 2019. By comparison, FitSmallBusiness.com says interest rates backed by the Small Business Administration (SBA) range from 3.91% APR to 13.00% APR as of July 2019. If you’re using a credit card to fund expenses, it may be cheaper to use a commercial line of credit depending on what type of expenses you’re funding. Credit cards are best used for smaller and short-term expenses. Secured lines of credit are usually utilized for larger purchases with a shorter term (usually six months or fewer). Term loans are best for long-term financing. The only way to find out is to research rates and talk to your current business financial partner. If you don’t have a business financial partner, one of Avadian’s Business Services representatives would be happy to talk with you about your business’s needs.
- Know your loan options. A common mistake made by new business owners is that they apply for a line of credit for business expenses when a better loan option is more suitable for their needs. For example, if you’re buying a vehicle or equipment, a term loan is better for you than a line of credit because you’ll save in interest. Make sure you know your loan options to maximize your credit options.
- Is cash really king? If you tend to use cash for all of your expenses, a revolving line of credit with a low rate may be a better option. You can withdraw from it as necessary and free up your cash for more important needs. It is common for a business to carry some debt and maintain an acceptable amount of liquidity. It is important for a business to have liquidity when applying for long-term credit.
- Look at more than numbers. Instead of just looking at your numbers, be sure to look at the merchants, lenders, and financial institutions you use. Do they only seem to know about products? Or do they know how successful businesses operate? Are they giving you their best? Beyond rates and fees, take a look at how they make you feel. Do they view your business as small potatoes, or do they treat you as if your business is as important to them as it is to you? You certainly want business partners who are going to work with you to grow and find solutions that make sense for you – and not just for what you can do for them.
How you manage your cash flow is an indicator of how successful your business is doing. In the ideal world, you pay your bills with cash generated from your business, not from debt. Of course, this can’t happen unless you are making a profit, and truth be told, you want to be making enough cash to cover expenses for at least 90 days. If that’s not happening, you need to take the following steps to better track the money coming in and going out of your company if you want it to grow.
- Project cash flow. A seasoned business owner will prepare cash flow projections for different times of the year. Cash flow projections are based on how fast money is coming in and going out. Factors include your customers’ payment histories, your vendors’ invoicing practices, your interest earnings, salaries and wages, service fees, seasonal sales fluctuations, loan payments, advertising, taxes, and operating expenses such as equipment maintenance, utilities, rent, etc. Accurate projections can alert you to trouble well in advance. It gives you time to develop a plan. It is wise to maintain a reserve separate from your daily operations. A good rule of thumb is to have at least 45 days of expense reserves. This shows the financial institution you’re planning and being proactive.
- Expedite receivables. We all want to get paid faster -- on time at the very least. One way to speed this process up is by turning your product/service over sooner than predicted. Other tips include asking customers to make deposits when placing an order, issuing invoices promptly and following up quickly if payments are slow coming in, and offering discounts to customers who pay for everything upfront. The quicker you can turn your product into cash, the easier you can manage your payables. Consider software that will help you manage your accounts receivable more effectively. This will help you maintain your monthly cash flow and decrease the likelihood of having to write off bad debt in the long run.
- Stay on top of payables. Watching expenses carefully is an everyday practice for a growing business. Any time you notice expenses exceeding sales, it’s time to zone in on where you can cut or reduce costs. Examine all aspects of the business. Shop around with vendors for better pricing, discounts, or more flexible payment terms. Schedule your payments to be made on the last day with electronic funds transfer. That allows you to retain funds longer while still remaining current. Consider reducing staff or at least staff hours if business is slow. Ultimately, you want to hold on to your cash as long as possible while having it flow in faster.
- Predict short falls. If your projections show trouble ahead, it’s better to approach your financial institution now to request assistance. By doing so, you show you have a plan. Financial institutions prefer to lend to you before you need it. If you wait until trouble strikes, it shows you failed to plan, and they will be more hesitant to lend to you. Getting ahead of it allows you to arrange a line of credit that you can withdraw from as needed, so you never are short on cash.
Every business experiences a lull in cash flow. It’s how you manage that lull that will determine your success. Be sure to understand your cash-flow statement, balance sheet, and income statement thoroughly to maximize any cash-flow potential or profit fully.
“Word-of-mouth” marketing is one of the cheapest and most effective ways of drawing customers to your business and helping it grow. Social media has made it even easier for people to share their experiences, thoughts, and reviews with tens to hundreds to thousands of friends. It’s also a great way to gauge how you’re doing as a business. Are your customers talking about you and referring others to you? If you’re not sure, one easy way to learn is to calculate your Net Promoter Score®. All it requires is sending a single-question survey to your current customers via email asking, “On a scale of 0 to 10, how likely is it that you would recommend our organization to a friend or colleague?” Your results will be calculated based on the responses. The higher your score, the more likely your customers are to recommend you. The lower your score, the more you need to work at improving your customer experience.
Here are some suggestions to help improve your score and, more importantly, to help encourage customers to talk about you:
- Build relationships with your customers. It’s not enough to be able to provide your customers with a product or service. You also want to develop a level of trust with them, so they overcome any buyer’s skepticism. Ask them questions, get to know them, and offer solutions -- even if those solutions are something you can’t provide. When they see you care about their needs, they're more likely to continue to turn to you and brag about you to others.
- Be intentional in everything you do. Ask your loyal customers to refer you. Most of us are quick to post negative reviews, but we rarely act when it’s a positive experience unless prompted. Referrals matter because we all prefer to buy from people we know, like, and trust.
- Create a “wow” moment for your customers. You've probably heard it said that people will forget what you said but not how you made them feel. That's something you can take to heart as a business. Chances are your company is not unique in what it sells or offers. What will make you unique, however, is how you engage customers, execute solutions, and resolve problems. By being attentive, acting with speed and excellence, and taking the responsibility to solve problems in a positive manner, you will distinguish yourself from your competitors and expand your business’s reach exponentially.
All of these efforts require time and mental energy. If done right, this type of marketing will benefit you much more than any paid advertising you’re currently doing.
Whether you've been running a business for decades or just a few months, you can always grow as a leader. Here are a few ways you can sharpen your focus and set up your business for success.
- Consider your time. As a business owner, you realize no one cares more about your business than you. It’s your “baby,” and you feel the need to be involved in every aspect of it. However, if you’re focusing on every little detail, you’re not utilizing your time appropriately or wisely. For example, you shouldn’t be managing payroll when there are services available that can do it for you. Instead, you should focus your energy on how to take your business to the next level. You should be spending time reading this article and others similar to it -- just like you are now.
- Surround yourself with good people. It’s only natural as the owner to feel as though you need to manage every department or process involving your business. The problem is, you’re not an expert at everything. Like our payroll service example above, not only can a service do it for you, but chances are they can do it better. Hire people who are the top at what they do, and then give them the reins to do what they do. Great leaders inspire other great leaders. Together you will grow faster than going it alone.
- Invest in training. This applies to you and to your employees. The more you invest in improving yourself and your team, the more leverage you will gain in the long run. You should never stop learning or growing. If you do, your company will cease growing. It’s also important to be responsive to change, just remember to hold true to the reason you started your company in the first place.
Be Willing to Ask for Help
You’ve asked yourself questions that require being honest with yourself – and being willing to be hard on yourself. Don’t let all that hard work go to waste. If you need help translating what you’ve learned into actionable steps, be willing to ask for help.
An Avadian Business Services representative would be happy to help you take your business to the next level. Call 1.800.874.3925 to speak with a representative today.