Small businesses are optimistic about long-term, not short-term futureDate posted: 4/14/15 06:15:00 AM
Small business owners are at an interesting crossroad. While many are bullish about the long-term future of their company, there's a large number feeling unsure about the short-term health of their business, according to a CFI Group Small Business Forecast. Thus, many small business owners are hot and cold about hiring or investing in their venture in the coming months.
"Entrepreneurs are largely quick to say they are happy with the way their businesses are going now, but are playing a bit of 'wait and see' before committing to major investments in their businesses," said Rodger Park, CFI Group's director of customer analytics. "The small business community remains a bit wary of overall economic conditions and is likely waiting to see what effects potential political and business climate changes will have in the coming months before deciding to expand."
While it's never a bad idea to be prudent when considering business investments, the differing views of entrepreneurs considering the short- and long-term potential of their companies is a bit puzzling.
Nearly half of all small business owners stated that it was "difficult" or "very difficult" to run their small businesses in the current economic environment. Thirteen percent said it is "easy" or "very easy," according to the CFI Group forecast.
That could be one of the reasons why small businesses aren't overly positive about the current landscape. Additionally, 47 percent of small business owners think their tax environment is "unfavorable" or "very unfavorable." Just 22 percent of small business owners called their tax environment "somewhat favorable" or "very favorable."
Understanding the cash flow of a company
The Small Business Administration stated cash flow is one of the most important factors to a company's success. When unforeseen expenses arise, a business must be able to meet those costs, otherwise there's a good chance that business will go in the red and fail.
"The number one risk for most small businesses is improper cash-flow management," Scott Lovingood, CEO of The Wealth Squad Inc., a small business consultancy, told Bankrate. "Calculate every month how much money you have on hand and how long it will last if your income dries up."
Lovingood said it's also important to look ahead for any cash flow crisis. He said figuring the total accounts payable and the number of days accounts are outstanding each month could go a long way in helping a business survive a cash flow drought.
Quality risk management is good for business
The SBA stated quality risk management can help a small business continue to keep its doors open. The less risk a company has, the better stability and cash flow it tends to have. The SBA said creditors shine a spotlight on stability and cash flow when handing out lines of credit. If a company is strong in both aspects, it's more likely to receive a business line of credit from a bank or financial institution.
With that being said, the SBA urges business owners to use their credit line responsibly. If a company uses its entire credit line too soon, they risk the chance of not having enough cash flow to deal with an emergency.
Tough economy makes it hard to invest for entrepreneurs
Robb Hilson, a small business executive with a financial institution, said a tough economy is likely fueling some dissatisfaction among small business owners.
"Small business owners feel less inclined to invest and make hiring decisions right now," Hilson said. "However, entrepreneurial spirit remains strong; small businesses continue to bet on themselves and are confident in the long-term health and success of the businesses they've built."
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