Business owners’ optimism is at its highest since February, with more than a quarter of owners saying now is a good time to expand, according to the latest survey from the National Federation of Independent Businesses. Data from Sageworks, a financial information company, also show that sales and profitability continue to grow for privately held firms.
But as businesses hire more, invest more and grow into new areas, it’s a good idea to maintain a focus on some of the fundamentals that underpin a company’s financial performance.
“When you’re running a business, you get so busy just running the business and the operations that you sometimes lose track of finances,” says Brian Hamilton, chairman of Sageworks. “And most people who start companies are not super interested in finance, so they kind of lose track of money, which is definitely one point of running a company — to make some money.”
Nevertheless, business owners need to know basic financial information – what the business cash flow is, how much profit is expected, what the revenue will be this quarter — in order to not only pay bills but also expand in a way that makes financial sense. In addition, there are several common business practices to avoid so that the “good times” of this economic cycle don’t end prematurely for the business.
Here are four habits to guard against:
Extending credit automatically
Failing to manage cash is one of the most common causes of business failures, and the trouble can start when a company offers credit indiscriminately to customers and then cannot collect. Business owners may be convinced they must offer credit to everyone and on the same terms, but if they truly consider their clients individually, they may reconsider.
“When you offer credit, you are now a bank and a service or product provider rather than just a service or product provider,” Hamilton says, estimating that in many cases, businesses truly need to offer credit to only about 25 percent of customers. Grant credit when it will increase revenue and income, and vary credit terms based on the overall relationship and creditworthiness. Is now the time to review the credit policy and implement changes for 2018?