The Overlooked Fundamentals of Small Business Survival

An online search for “how to start a small business” mostly returns results that are focused on creating a business plan and conducting market research. That’s good advice, but it’s missing something very important that is too often overlooked: the fundamentals of running a business.

While filled with optimism, new business owners too often lack an understanding of the fundamentals of running a business. Even the SBA fails to address this important matter in their article 10 steps to start your business.

But a business can’t survive on optimism alone. Having the fundamentals in place, like a solid foundation beneath a building, can allow for sustainable growth that takes a business from launch to survival, and eventually success.

Unfortunately, most of us weren’t trained in how to manage a business. Schools focus on careers in which people work for other people’s companies — where the finances are someone else’s job. New business owners need a reality check about what it truly takes to build their business.

Understand the Fundamentals

The fundamentals of running a business include having a clear understanding of profit. It seems basic, but many people don’t understand that revenue is not the same as profit.

Seasoned entrepreneurs understand that careful consideration for costs and the resulting profits are key metrics to success. After all, you can’t succeed unless you can survive, and survival doesn’t happen without keeping expenses in check.

Costs can easily get out of hand for a new business, and if they aren’t tallied until tax time, the business owner won’t understand what they made or lost until their accountant tells them — and that might be too late.

Profitability can’t be reached with blinders on. Yet most new business owners don’t start off tracking expenses. They may have a high-level idea, but that’s just not good enough. Especially when times get tough. They need to have a timeline goal for getting to profitability.

Most people don’t develop a realistic plan for profitability, and that’s where the problem starts. They want to make money off their hobby or something they love to do, and then spend too much on making that happen. Having a clear plan for spending is part of having a plan for profitability.

Take Profit First

Ultra-small businesses – the solopreneurs – usually don’t pay themselves at first. They don’t consider how much salary they need to take out of the business to live. Revenue may look good, but eventually they need to know how much income they need and by what date.

There’s a great book on this topic: Profit First by Mike Michalowicz. He promotes a new formula for success that may seem backward at first: Sales – Profit = Expenses. In other words, businesses need to take a profit and then determine what they can spend on expenses.

For a small business, that profit includes the owner’s salary, which comes before deciding whether to rent space or subscribe to another online service. Technology and unbridled optimism make it easy to subscribe to too many services, but you have to be realistic about profit, especially if the business is going to take on employees.

Have a Plan for Profitability Tracking

Business owners need to easily track and see money in and money out. In a perfect world, all the fintech platforms used by small businesses would provide the basic tools needed to simplify financial tracking and reporting, and doing so is not a difficult endeavor.

Accounting systems come in all shapes and sizes, and young or very small businesses don’t need an expensive one. Too often, major accounting platforms make people think a much more expensive monthly package is going to make them more profitable. But it won’t (and it’s too complex).

Fintech platforms should provide what their customers need to survive, and they need to make profitability easy to see and understand.

Utilize Embedded Accounting Tools

The main thing is that folks need to know what they spend. And to do that, they need to be able to easily track their business expenses. A small business owner, especially in the first couple of years, is so busy figuring out everything else that they don’t have time to manually track all their spending.

Small business owners don’t need an expensive and complex accounting system, they just need an easy-to-understand P&L system. And the fintech platform they use should provide that for them.

Using Tight’s API to seamlessly embed white-labeled accounting tools, small business-focused fintechs, and vertical SaaS platforms can provide business owners with invoicing, financial reporting, business expense tracking, and much more. These tools help provide the clarity small business owners need to make business decisions and build sustainable businesses that survive the early years and challenging economies.

The benefit to the provider of these tools is that the longer a customer stays in business, the longer they will be a customer. Everyone wins.