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Every small business starts with an idea and a dream.
However, growing a healthy business is different for every small business owner, depending on their business’s size, industry and goals, says Stephen Spears, senior vice president of Twin Cities community banking at Bremer Bank.
“Generally, a business that is performing well is one that can drive consistent revenue, with that revenue eventually manifested into actual profit,” Spears says. “One thing business owners should keep in mind is that there’s a difference between sales and profits. Well-performing businesses are able to operate at a healthy profit margin, which again, will look different depending on the owner’s business goals and preferences.”
To ensure your business stays on a healthy path, follow these tips.
Seek information first
Building a successful small business requires research, planning, commitment, capital and knowledge. For the latter, owners should gain as much information as possible before launching a business.
If you’re considering opening a small business of your own, the U.S. Small Business Administration (SBA) recommends first doing a market analysis to truly “understand your customer base at the outset.”
Gathering customer demographics also helps identify opportunities and limitations for gaining customers. The more you learn, the more you can determine how to meet customer needs and maintain a competitive edge. This market analysis will be helpful to share with future banking partners or investors.
“Whether it’s Bremer Bank or another bank, you need to understand what is required to obtain a consistent means of capital. That’s where banking and financial institutions come in,” explains Spears.
Banks are a great informational resource and essential finance partner. They will lend more capital over time to help your business grow. So, begin with and maintain a solid connection and leverage your banking team’s financial expertise.
Develop a strong business plan
“Once you’ve obtained information, including bank requirements for lending, the next step is to develop a strong business plan to guide the future of your business,” Spears recommends.
Creating a solid business plan helps secure funding, attracts investors, and provides a roadmap for operating and growing your business, according to the SBA.
Key components of a traditional business plan include the following:
Executive summary: The business mission statement, your product or service, leadership team details, employees and location.
Business description: The problems your business will solve and consumers, organizations or businesses your business aims to serve.
Market analysis: Research about your customer base and competition.
Organization and management: Your business’s structure, including leadership details.
Service or product line: Products and/or services your business will sell and customer benefits, copyrights or patents you hold or will seek.
Marketing and sales: Marketing strategies, plans for attracting and retaining customers, and sale processing details.
Funding request: An outline of your business’s funding requirements.
Financial projections: A financial forecast and outlook for the next five years.
Appendix: Relevant supporting documents such as licenses, credit reports and patents.
A detailed, well-written business plan should convince lenders and investors that working with your business is a smart decision.
Establish boundaries between business finances and personal finances
Many small business owners use their own money when starting their business. To avoid blurry lines and murky accounting, it is important to remember that you, as an individual, are one entity, and your business is another. Therefore, it’s essential to establish healthy boundaries between your business’s finances and your personal finances.
“If you’re an individual investing in and owning your small business, consider yourself to be the bank – you’re lending both your time and your money,” Spears says. “Determine whether your lending of these two valuable resources is a good investment or not.”
To keep clear and accurate business records, open a business checking and savings account and obtain a business credit card. Use these accounts to pay bills, order supplies, complete employee payroll and pay any other business-related financial transactions. Always keep your personal funds and expenses in a separate account.
Drawing a salary is important
It may take a while to build consistent revenue streams – and as a small business owner, you might hesitate to even draw a salary. However, you should start paying yourself as soon as you have a good sense of your business’s cash flow.
“It is important for small business owners to be thinking of their investments of time and personal finances as something that is immediately salary-worthy,” Spears advises. “At the very least, view it this way: If you’re investing time, energy and finances in your business, you have to plan for when you can begin collecting your return on it.”
Leverage government and association certifications
Securing government and association certifications can provide significant opportunities to grow your customer base and in turn, your profit.
“Understanding what is available and what makes most financial sense can help set your business up for even greater success,” says Spears.
For example, earning minority-owned enterprise status “can open up new opportunities for federal, state, local and corporate contracts,” according to the U.S. Chamber of Commerce.
Many U.S. government agencies and corporations earmark a percentage of their contract budgets solely for minority-owned businesses. To land these kinds of customers, qualifying businesses can apply for minority-owned certification status with the National Minority Supplier Development Council.
Other certifications include women-owned small business certification and veteran small business certification.
Understand when to do a financial audit
A financial audit reviews your business’s financial statements and accounting activity, identifies potential issues, and assesses performance. Your accountant is a valuable resource who can work with you to understand formal, industry-specific audit processes and determine if (and when) your business needs one.Keeping all your financial partners in the loop as your business grows will help keep you on track to meet your business goals — and Bremer Bank can help! Bremer’s team of small business bankers can work with you to evaluate your individual financial situation and if needed, connect you to other experts to explore tools and processes that will benefit your business. Learn more at www.bremer.com.