There’s an old adage is that good news doesn’t sell newspapers. And whether or not it’s true, it’s a depressing premise either way. So with that in mind, we like to occasionally highlight good news – after all, we don’t have newspapers to sell – because despite what the media may tell you, the country is full of small business success stories.
Take this article in the New York Times, for example. It looks at the “Berkeley of the East,” otherwise known as Ithaca, NY. The small college town is experiencing tremendous growth thanks to its innovative and reciprocal relationship with local colleges, specifically Cornell University. The premise is pretty simple. The universities crank out thousands of young, energetic, and brilliant graduates while the town breaks down barriers for entry for small businesses. The net result: dozens upon dozens of boutique firms, ranging from retailers to dot.coms, that can enjoy a steady stream of local talent as well as an embedded customer base.
Again, this is all good news. But let’s put ourselves in the shoes of these small businesses. Let’s imagine a dot.com or app designer who launched a three-person firm right out of college. They’re renting a building a few miles from campus. They’re all in their early 20′s with computer programming degrees, a fiery work ethic, and a passion for designing applications. There’s just one problem: no one has extensive financial management experience. No one took accounting courses. No one knows the basics of economic modeling or financial planning. And as a result, these weaknesses can have a tangible and costly effect on business growth. Let’s look at some examples as to how this plays out.
At the most basic level, these businesses – again, due to poor financial planning – may simply lack the cash to maintain daily operations. And low levels of liquidity will impede growth. After all, people need to be paid, whether it’s the utility company, the landlord, or partners. As a result, start-ups may want to consider outsourcing financial management to help maximize cash reserves.
Of course, the main reason why small business lack cash on hand is that they spend too much. This problem is particularly acute with start-ups who embrace the renegade culture of Silicon Valley. Think of the famous scene in the movie “The Social Network” where coders are working through the night in an enormous mansion while college kids are swimming in the in-ground pool. Those guys clearly didn’t spend too much time worrying about the bottom line.
An outsourced financial planner can help small businesses control spending by implementing purchasing policies that allow them to get the “most bang” for their vendor-buck. Planners can also build greater transparency into the procurement process, outlining strict budgets, and creating uniform policies so everyone is playing by the same rules.
Of course, these are just a few of the roadblocks small businesses can run into from a financial management perspective (we’ll look at more in future posts.) Until then, we’ll continue to embrace pieces of good news across the small business economy. Just make sure poor financial management doesn’t ruin your small business’s happy ending.