Small businesses are a good news story. In Canada, 96% of all businesses are small businesses, defined as having 1-100 employees. The most recent figure for this is more than 1.1 million businesses. Collectively small businesses employ more than 5 million people which is 48% of Canada's total workforce. Small businesses are finding success right across the country and contributing to a whopping 42% of Canadaís private sector GDP. (StatsCan)
These companies also provide 86% of all exports for a total of $68 billion or 25% of total exports. (Industry Canada) These numbers are huge and small business owners say things are looking up after a few hard years. A CBC Dragonís Den chat reported that 88% of all respondents said their business was doing the same or better than last year. Thatís true for me as well.
According to a recent Statistics Canada report about 100,000 new small businesses are started every year nationwide. Almost that many fold up shop, but not quite, so thereís a small net gain annually, and a good number of those calling it quits do so after having made a pretty good living for many years. According to the TD Waterhouse's Business Succession Poll that came out this month, 23% of owners said they would close the doors on their small business when they were ready to retire, and another 18% said they would pass it on to a family member. Sounds like a success to me (which works even better if you have a good succession plan).
When asked their biggest challenges the Dragonís Den respondentís said cash flow, marketing, work life balance and managing staff, in the that order. Cash flow was the number one worry for over half. Not surprising since it is typically considered the gold standard for measuring the strength of a business and can mean the difference between making it and failing. In honour of small business owners and Small Business Week, here are some best practices for cash flow management:
1. Get invoices out quickly and send them by email instead of surface mail. Itís not cash until you have it in your hand.
2. Offer a discount on accounts paid early. The sooner you are paid, the sooner you can use that money.
3. Encourage cash payments or, for regular customers, have them sign up for preapproved payments.
4. Ask your suppliers if you can pay on credit and take advantage of maximum payment times. If youíve been a good customer, or can assure that you will be, you may have some room to negotiate. But make sure you pay in accordance with your agreement; being a bad customer means you loose flexibility when you need it.
5. Refuse to carry customers who repeatedly pay late or carry an outstanding balance. A non-paying customer is never a good customer. Consider how much staff time it takes to chase them down and how much you expect youíll actually receive in the end.
6. Manage your inventory. Consider ordering in smaller amounts more frequently or if you go through inventory in sufficient volume, negotiate lower rates by buying in bulk.
7. Consider the benefits of financing purchases or to fund expansion sooner rather than waiting to pay in cash. Will the advance on revenue outweigh the interest expense? Will you be able to generate additional revenue before you have to start making payments?
8. Use your line of credit to smooth out fluctuations in cash flow. Of course this only works if you have a favourable interest rate or can pay it off in short order.
9. Consider obtaining a debit reward card for credit card purchases rather than air miles points. In some instances this can be as much as 2% back on every purchase.
10. Control costs and reduce waste by conducting a waste audit. Evaluate all your costs to find where are you losing and how can you minimize the loss. Start by going with your intuition, but be prepared to be surprised. Also ask your employees where they think you can control costs or cut waste. You might be surprised how much they know and are willing to tell you if you only ask.
11. In slow times offer wage employees shorter work days or extended holidays. Know that some people will consider this a favourable perk, but others will struggle with it.
12. Have a cash flow plan that sets sales targets and anticipates costs. This requires good record keeping so you can be accurate in your projections and your costs. Also consider output volumes and capacity. If your output increases, at what point do you need to hire more staff, buy more vehicles or get a bigger facility? How will you pay for it?
The longer I work with small businesses the more I become a vocal champion of their importance to our economy. Not to mention itís a great way to earn a living, whether as an owner or an employee. Sure thereís risk, but conversely, when youíre working for a big stable organization thereís risk that you will suffocate, lose yourself or simply die of boredom. Thereís little chance of that with a small business, especially if you find success.