According to the U.S. Small Business Administration (SBA), a small business is one that employs fewer than 500 employees, a definition that applies to a wide swath of companies. In fact, the SBA says that small businesses account for 99.7 percent of employer firms, making them a significant sector of the economy.
There are many challenges for small businesses, however. If you are a small business owner or have plans to be one, the California Society of CPAs offers these tips on three common mistakes to avoid.
Mistake # 1: Act First, Plan Later
Forging ahead without knowing where you’re going is always a bad idea, but it’s especially true with a small business. Whether you’re launching a start-up or thinking about the near-term prospects of an existing company, it’s wise to set down a formal business plan or strategy for the near term.
The plan will be essential for new ventures that are seeking outside financing. It can also provide a crucial reality check that will help clarify your goals and decisions no matter how long your company has been around. It may also be a good idea for a mature company to create a new business plan if you need additional funding or investments, you are experiencing a meaningful rise or decline in demand or new competition, or you’re considering a change in management or a merger or acquisition.
The plan should include financial statements that give you a sense of where you stand and insights into the company’s strengths and weaknesses, as well as an overview of the market for your products or services and the competition you face, among other things. It should also describe your business, including your top executives and other key employees and their experience.
The plan elements may vary depending on your goals, which may include making strategic decisions, attracting investments or financing or recruiting new employees. The SBA offers details on business planning that can introduce you to the process.
For help in crafting a plan customized for your organization and understanding how to put it to work in your business, turn to your CPA.
Mistake # 2: Fail to Set Goals
Your business plan offers a blueprint of your organization, all that it has going for it and the challenges it may face. Many people drop it in a drawer once it’s done, but that’s a tremendous waste of valuable information and insights.
Instead of setting your plan aside, use it to set near- and long-term goals and to diagnose any roadblocks that may stand in the way of future success. Your business plan can be the centerpiece of a strategic planning session in which your company executives, and perhaps your investors, plot a course for your future.
Remember that including your CPA in this planning session can provide you with valuable financial and market insights. If the company is a solo or very small operation, consider sharing your plan with trusted advisors, including your CPA, to gather their input.
Mistake #3: Forget Your Purpose
When you launched your company, you probably had very clear goals in mind. Are you still on target to meet them? Sometimes, given the day-to-day demands of running a business, it’s possible to forget the reason you started the company in the first place. Or perhaps a challenge in one area of the business has made you lose sight of opportunities or threats in other areas.
If you’re not sure that your company is still on the right path, an objective observer, like your CPA, can offer some worthwhile perspective.
Turn to Your Local CPA
CPAs work hand in hand with hundreds of thousands of small companies across America, offering them advice and information that enables them to meet the challenges they face and achieve their goals. Be sure to consult your CPA with all your financial questions.
The Money Management columns are a joint effort of the AICPA and the California Society of CPAs as part of the profession’s nationwide 360 Degrees of Financial Literacy program.