Probably the greatest obstacle to small business growth is funding. Most small business owners start their businesses because they are true experts in their field. They decide to take the risk and open their business, rather than continue working for others.
The risk of starting a business is incredibly high. Less than half of the businesses which are started make it past the three year mark. Generally, the business ends up failing, not only taking the owner’s profits, but taking their savings as well.
Why does this happen? Because these entrepreneurs don’t know business. They know their field of specialty, but not really how to run a business. Any success they have in their business is more based upon their technical knowledge than their business knowledge. In many cases, that lack of knowledge is their downfall.
But, even in the cases where that lack of knowledge doesn’t cause their downfall, it may prevent their business from growing. For most businesses, taking the step up from a one or two man operation requires an influx of cash. Without that, there isn’t the money to buy necessary equipment, do the necessary advertising or hire the necessary people.
There are two basic ways of finding funding for a small business; loans or investments. Banks and other financial institutions make small business loans, allowing business owners to grow their business. Of course, the loan has to be paid back, but the owner retains full ownership of their business. Investors, on the other hand, want something for their money; partial ownership in the business. While that means that the business founder no longer has 100 percent ownership in the business, they don’t have to pay a loan back, just split the profits with their partners.
In either case, whether the business owner is seeking a loan or seeking investors, he needs to have his paperwork in order. More than anything, the people with the money are going to want to see if the business owner has a firm grasp on their company’s finances. That doesn’t just mean knowing how much money they have in the bank, or how they are planning on spending the investment money, that means having a business plan.
A business plan is a series of financial documents, which plot out the expected return on any investment that is made in the business. They show the company’s budget, their actual expenses, how the investment will be used, what the projected budget of the company will be with the growth, how sales and income will increase, and ultimately, how much profit there will be.
The average small business owner doesn’t even know what most of the financial documents required are, let alone how to prepare them and how to properly present them. Yet, if their business is going to grow, they need that knowledge. They need to study something like the BSBSMB402A course on Planning Small Business Finances. That will give them the key knowledge they need in order to create those documents. While they may still need the assistance of an accountant, they’ll at least have an idea of what to tell the accountant and how to make a financial plan that makes sense.
How many of those failed businesses would succeed if they had the right financing to grow? There’s no way of telling. Even so, lack of financing is commonly considered one of the biggest reasons for small business failure. With the right injection of cash at the right time, they could make it over that hurdle and become viable, successful businesses.
This article was published in Equipped, Fortress Learning’s free monthly magazine for success.