ALL ABOUT THE NUMBERS: Daniel Williams, of LaPorte, says a lot of the business owners he works with lack passion for accounting—which is not a good thing. (Photo by Don Kadair)
Daniel Williams, who directs audit and assurance services for LaPorte, works with a lot of passionate business owners. But they’re usually not passionate about accounting.
“A lot of these [entrepreneurs] have a lot of great ideas and their businesses are growing exponentially year after year, but finance and accounting is often thought to be more of a pain and a necessary evil than something that’s a critical part of the business,” Williams says.
Of course, raising money to get started can be a major hurdle. Even when the money is coming in, many small businesses aren’t very good at keeping track of it. Then there are all the market forces and government policies that can shift at a moment’s notice, rendering an entrepreneur’s plans outdated or even obsolete.
We consulted local experts about some of the most common financial challenges faced by small businesses, and how those hurdles can be overcome. Standard caveat: Every business is different, and your mileage may vary.
Problem: Entrepreneurs without much of a track record or revenue often find it difficult to secure bank loans.
Solution: Microlenders like LiftFund, venture development funds like Baton Rouge’s Innovation Catalyst, and angel investors, such as those that can be found through the Louisiana Entrepreneur Access Portal Capital Providers Index, may be able to help. Louisiana Economic Development’s Small Business Loan Guaranty Program also can help eligible firms unable to find conventional backing.
Crowdfunding has grown popular in recent years. But a successful campaign requires strategic planning and targeted marketing to potential backers.
Federal Small Business Innovation Research grants are designed to help fund technical research and development work by small businesses creating innovative products for government agencies.
Problem: Whether pitching to traditional or nontraditional funders, entrepreneurs often don’t know how to sell themselves.
Solution: Communicate the way your business’ product or service solves a problem in a simple, relatable way. Talk to potential customers and be well informed about market trends. Never assume there is no competition. Create a financial model and have reasonable revenue and cost forecasts that are backed by research. And remember, funders often bet on the jockey, not the horse, so demonstrating competency and confidence goes a long way even when your business plan needs work.
IT’S NOT PERSONAL
Problem: Often, there is not a clear demarcation between financials that are part of the business’s operations, profits flowing to the owners, and salary going to the entrepreneur. Money might be taken out of the register or business bank account to pay for immediate needs, without a clear link to business operations. Beyond the potential tax and accounting ramifications, this practice makes it harder to understand how your business is functioning.
Solution: Resist the temptation to treat the business like a piggy bank.
Problem: Small companies often rely on standardized, off-the-shelf accounting software that isn’t tailored to their business. They often don’t feel they can afford to hire a full-time CFO or contract with an outsourced CFO.
Solution: Best-in-class cloud financial management solutions are available that are more flexible and adaptable. Small businesses might consider hiring a bookkeeper, rather than a more expensive CPA, but having a CPA look over the bookkeeper’s work a couple times a year.
CONCENTRATION OF WEALTH
Problem: The business comprises almost the entirety of the owner’s net worth.
Solution: It’s tempting to go “all in” when the business is just getting off the ground. But as a company grows, the owner or partners should work to build wealth outside of it to diversify their risk.
Problem: You’ve heard that “cash is king,” but “cash flow” actually wears the crown. The timing of how and when it comes in is crucial to running a business.
Solution: Monitoring the pacing of income from different customers can be complicated, but it’s crucial. For example, that big new customer might be tempting, and their job might be profitable in isolation. But if it ties up all your resources, and you won’t get paid until the job is done, there will be ripple effects across the organization that could affect overall profitability.
TAX LAW CHANGES
Problem: Few entrepreneurs fully understand how last year’s massive federal tax bill might affect their business, meaning they could be missing out on time-sensitive tax-saving opportunities.
Solution: Sit down with a CPA who is well-versed on the changes and find out what you’re missing.
KNOW THE MARKET
Problem: Many entrepreneurs take the leap without doing enough research on the marketplace.
Solution: Know what others are charging, so you’ll know whether you can compete on price. Understand industry-specific performance indicators and benchmarks.
LACK OF GUIDANCE
Problem: Small business owners often face issues beyond the scope of their expertise (see above). They tend to get caught up in the day-to-day grind of managing the business and aren’t able to step away and assess where they are and where they are headed.
Solution: Entrepreneurs can find mentors, advisors and resources through many organizations. Entrepreneurs whose businesses have not yet got off the ground may find mentors through SCORE or Louisiana Small Business Development Centers. Small businesses that are beyond the idea stage can benefit from incubation programs available through the Louisiana Technology Park or one of LSU’s business support programs.
LED’s Small and Emerging Business Development Program can refer business owners to a statewide network of intermediaries that deliver specific training on technical and management issues. LED also offers several targeted programs meant to help small businesses develop capacity, overcome growth challenges and get to the next level.