Many people dream of becoming entrepreneurs, and often the biggest...
Letting technology do the heavy lifting for certain monotonous tasks...
Accurate accounting is the bedrock of any successful...
Distinguishing between independent contractors (1099) and employees (W-2)...
June 5, 2023
Today, there are nearly 30 million small businesses in the United States. And while big corporations may have the most name recognition, small businesses with fewer than 500 employees account for 99.7% of all businesses in the country! Together, all the micro-companies, garage-based businesses, local franchises, and regionally recognized brands employ an incredible 56.8 million people.
Unfortunately, according to data from the Bureau of Labor Statistics , as many as half of all small businesses fail within their first five years of operation. And the biggest contributing factor? Poor cash flow.
According to an often-cited study by a U.S. Bank, a full 82% of small business failures are caused by poor cash flow or a lack of understanding of how cash flow impacts operations. These businesses may have started out successful, but within a few months or years, they struggled to purchase inventory, expand their workforce, streamline operations and build their brand.
When your small business begins bringing in revenue, it’s easy to assume you’re on the path to success. But there’s a distinct difference between a business’s revenue and its bottom-line profit. And that’s what gets small business owners into a financial bind.
Revenue refers to the total amount of cash you generate by selling your products and services. This number is typically near the top of your income statement. In a healthy, debt-free business, this number should be the largest on your financial statement.
Profit, on the other hand, refers to the amount of cash left over after you’ve covered your business’ expenses and liabilities. The cost of inventory, shipping costs, and even rent, labor and utilities all impact this bottom line number.
If you put too great of a focus on your top-line revenue, and don’t carefully watch your bottom-line profits, you can experience crippling cash flow issues, growing debt, and difficulty covering your daily expenses.
Cash flow issues don’t just impact your ability to cover rent. They can prevent your business from growing. Expansion often requires investment, like buying a new building or pre-purchasing a large quantity of inventory. But if your business is facing major cash flow problems, you may struggle to save the cash needed for these investments. And in today’s tight lending environment, banks are becoming increasingly hesitant to lend capital to businesses that don’t have visible profits.
There are a few strategies you can leverage to increase your small business’ revenue and profits, or to reduce expenses and grow your profit.
As a small business owner or entrepreneur, you have a lot on your plate. You’re likely leading product development, hiring team members, running your marketing department, financial planning, meeting with customers, courting investors and more, all in the same week!
Instead of managing your own business finances, consider outsourcing your essential financial tasks, like reporting, planning, analysis and forecasting. By engaging an outside professional, you free up your own team to focus on the internal tasks they’re best at and give the financial side of your business the dedicated attention it needs.
You’re an expert at what you do. But that doesn’t mean you need to be a financial expert also. When you partner with a true finance professional, you gain instant access to the kind of advanced knowledge that would take you years to learn on your own. And by harnessing the power of this tailored expertise, you have the opportunity to not just survive your business’ first five years, but to grow exponentially through them.
This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.
Our team is made up of seasoned professionals who bring years of industry experience to the table. You gain a trusted advisor who understands your business inside out.
Say goodbye to the hassles of hiring, training and managing in-house finance teams. You will never have to worry about unexpected leave of absence or retraining new employees.
Whether you’re a small business or a global powerhouse, our solutions scale with your needs. We eliminate inefficiencies, reduce costs and help you focus on growing your business.
Accurate accounting is the bedrock of any successful business operation. Yet, medium-sized businesses—those that have grown beyond the small-business stage...
Distinguishing between independent contractors (1099) and employees (W-2) is a pivotal compliance matter for U.S. businesses. Misclassification can result in...
Spring symbolizes renewal, making it an apt metaphor for startups aiming to secure fresh capital to fuel their next growth...
Payroll is more than just issuing paychecks—it’s a complex, high-stakes process that can significantly impact employee satisfaction, legal compliance, and...
For startups seeking sustainable growth, every quarter provides a treasure trove of data—but Q2 data can be particularly revealing. By...
By the time Q2 rolls around, many startups have a clearer picture of their performance and market positioning compared to...
For many startups, the summer months can be a dual-edged sword. On one hand, warmer weather and looming vacations can...
Tax season often triggers stress and complexity—especially for startups laser-focused on building products, acquiring customers, and scaling operations. Yet savvy...
The halfway mark of any given year is more than just a date on the calendar; it’s a valuable checkpoint...