Getting a small business on the path to meaningful growth can be a challenge, with many pitfalls along the way. But if there's one group of people who know how to overcome those obstacles, it's the financial consultants who work with SMBs every day. We asked three consultants about the biggest obstacles that hamper SMB growth — and how back office professionals can overcome those challenges.
Mistake No. 1: Doing It All
One key mistake is trying to do it all, says Kelly Bender, president of Pennsylvania based Total Business Solutions. "Many struggling to grow small businesses get caught up in the general day-to-day tasks, and lose sight of their growth plans."
She adds that getting caught up in menial tasks and trying to fill all the roles — from CEO to office assistant — will make SMB owners lose focus. Her advice? "Know what you're good at, set clear expectations for yourself and your team, and delegate those things that prevent you from being focused on growth."
Mistake No. 2: Making the Wrong Hires
If you're hiring people to do the tasks you don't want to do yourself, it's essential to hire the right people, says Nicole Fende, founder of The Numbers Whisperer. In fact, hiring the wrong employees can really undermine a company's financial viability. It's important to have "a clear and objective process to hire new employees." SMB owners often wait too long to hire and end up feeling overwhelmed. Decision makers then short circuit the hiring process and resort to throwing bodies at positions or hiring people they know rather than the most qualified [candidate]."
The cost to an SMB can be enormous, Fende says. "A bad hire will cost a business at least three times the salary you are paying them. Consider this: Hiring one person at $30,000 who doesn't work out will cost you at least $90,000!"
Mistake No. 3: Ignoring Financial Metrics
Steve Peck, host at the "Harness the Web" podcast, adds that many SMB finance leaders ignore key financial metrics, especially at the start. "Many rely solely either their revenue numbers, what's needed for taxes or total cash in the bank. They are missing the metrics that are really needed to steer their business and to make adjustments for improvement."
He recommends finding a reputable business coach or consultant who can help identify areas that you might have overlooked.
So, if those are the mistakes to avoid, what should SMBs do to put them on the right path for growth?
Financial Management as a Growth Strategy
Keeping close tabs on cash flow and payments are key. Fende recommends SMB owners review their six month cash flow projections every month due to the fluctuations in revenue that can happen during the year. "It's important to set aside money during the lucrative months to offset slow periods. Without strong cash management businesses can grow themselves into failure," says Fende.
SMBs need a firm financial foundation, according to Bender, and that starts with tracking the numbers. " Too many businesses start operating their businesses never having given their financial reporting a thought. Usually, when annual tax time comes around they decide to go back and unravel their finances from the previous year," she says.
For Bender that foundation is solid bookkeeping practices. "From good bookkeeping, you can create financial reports — and with financial reports, you can develop financial and tax plans," she says.
A solid financial foundation is the heart of any growing business. By paying attention to finance metrics, hiring the right people and understanding your business's cash flow you set your business up for financial success.
Sharon Hurley Hall is a professional freelance writer and blogger. Her career has spanned more than 20 years, including stints as a journalist, academic writer, university lecturer and ghost writer. Connect with Sharon on her website and Twitter.