by Elizabeth Ducie

Created on: November 22, 2009

In writing this article, I am making two assumptions:

The long-term objective of our small business is to be successful;

Success is defined as profitability. (That's not by any means the only measure of success, but it's the one I'm assuming in this context.)

In all businesses, there is one equation which is valid: income minus costs equals profit. The financial advice most appropriate for us to receive as small business owners will often depend on the stage we have reached on the life-cycle of our business.

If we are just starting out then our financial priorities and expectations will be different from when we have an established or mature business. Let's look at each situation separately.

Starting Out

Whatever our small business, starting out is a difficult period.

We have to identify a product and service that is saleable and which we can deliver. We may have to experiment or do some development before we get it right.

We have to identify our potential customers and get the message out to them that we are around.

If we have any staff associated with this business. We have to make sure their wages are paid even if ours aren't.

These activities may take some time to get through and need to be completed before we can expect any income. Therefore we need to think about interim funding options.

Do we have savings or investments we can rely on?

Do we have other members of the family who can help?

Are there any grants or other types of financial support available?

Do we need to take out a bank loan?

This last option should be the one of last resort. It's a mistake to take on an additional financial commitment, such as an interest payment, before we know whether our business will succeed or not.

At this stage in the business, our own wage is the last thing on the list. Just being able to pay the bills and keep the business open is considered a measure of success. Unless we are very lucky this is certainly not the time to be thinking about company cars, health insurance or membership of the local golf club.

Established Business

Once the business is up and running (which may be 12 months or more down the line), we have a right to expect to be making some money. Many of us identify what we think is an appropriate wage level and re-invest any surplus in the business. Deciding what's appropriate is a decision no-one can make for us. Now may be the time to start thinking about some of those extras or perks that we deserve for all our hard work.

Financial

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