Starting a business is tough enough, but making the right choices in the journey to achieving sustainability, profitability and growth can be equally, if not more, challenging.
Our Chief Risk Officer Garth Rossiter, shares five characteristics which indicate that an SME is on the right path. “It takes an enormous amount of personal sacrifice and effort to get to this level of business health,” says Garth. “I think a lot comes with investing time and understanding your cash needs and budgeting. But let’s not forget that almost all successful businesses were once struggling start-ups. If you’re committed to the business and want it to succeed I believe you can get there.”
Here are five healthy business characteristics for you to aim for, and some tips on how you can steer yourself a little closer towards them:
A steady or growing flow of income
You need to be selling a product or service that people really want to buy; and you need to keep growing your customer base to increase a steady flow of income. This can be done through marketing.
Consistent or predictable expenses
If you budget properly, you can plan for expenses mostly and keep them relatively predictable.
Growing cash balances
Cash balances will grow if you keep some cash in your business and don’t spend it all, which could result in running into liquidity problems.
Good management of liquidity and working capital (debtors, creditors and inventory/stock)
Good management of liquidity and working capital will come when you really understand your business – how much stock do you need to hold (you don’t want to spend all your cash on stock you can’t sell)? What sort of terms are you giving your debtors and what creditors terms do you need to work with?
An appropriate level of debt
This means making sure that debt is being used to expand the business or take advantage of opportunities, rather than just to stay afloat.