Any entrepreneur who is running a small business would have heard of terms such as small business insurance, small business loans, small business funding, small business accounting, small business financing etc. While some of these are, for sure, important success factors for any business, big or small, many are closely related to others or are even overlapping each other.
Understanding of these terms and making full use of these concepts is important for any small business owner who is visualizing success, dreaming big, always raising the bar, taking responsibility and loving the change. Through their application, the entrepreneurs will do well to minimize their overhead expenses, improve operational efficiency and increase profitability in the context of success factors for small businesses.
Important Success Factors for Small Business
We can talk about a number of success factors for small businesses, but for our purposes here, we shall talk about only the following important factors:
- Small Business Insurance
- Small Business Loans
- Small Business Funding
- Small Business Accounting and
- Small Business Financing
We shall examine these key success factors with particular reference to small businesses. We shall see as to which all factors out of these overlap some other factor/s and can be combined for the purposes of our discussion here. We shall also look at some other pertinent success factors, as considered appropriate. Now, let us examine these factors one by one:
1. Small Business Insurance
Small Business Insurance is not just the first and foremost success factor for a small business; it is the most important one as well.
As an entrepreneur, you have built your business with utmost care. You have probably put your life and blood into setting up your business over a considerable period of time. For years at end, you have carefully nurtured this business. You and your employees depend on it for livelihood.
For the success of this small business, it is of paramount importance that it runs perpetually, come what may! There are foreseeable risks and those that cannot be predicted. The Small business insurance protects you against all such risks. You choose a plan that suits your needs best and pay premium for this small business insurance accordingly, i.e., in line with the insurer’s estimate of the risks involved. You can select a suitable risk coverage plan out of the following small business insurance options that are generally available to businesses:
- General liability insurance
- Property insurance
- Business owner’s policy insurance
- Commercial auto insurance
- Workers’ compensation insurance
- Professional liability insurance
- Directors’ and officers’ insurance
- Data breach insurance
- Home owner’s insurance
- Renter’s insurance
- Cyber insurance
- Life insurance and
- Personal automobile insurance
In nutshell, you should never leave your small business exposed to potential danger from known and unknown sources. You must take a small business insurance cover in consultation with your insurance adviser.
2. Small Business Loans, Small Business Funding and Small Business Financing
Small Business Loans, Small Business Funding and Small Business Financing are a few terms which are, sometimes, used interchangeably in connection with the fund requirements or financing of a small business. The term small business financing is used to denote the means which an aspiring or existing business owner adopts to obtain the funds required to start his small business or to buy a running small business or to finance his current or future business activities.
Traditional Small Business Financing Options
There are two traditional ways of small business funding or small business financing, namely, Debt Financing (taking small business loans) and Equity Financing (selling ownership rights in the business for arranging capital) and both are in use, depending upon the need in each case.
Debt Financing as a means to raise small business funding by way of small business loans for small business financing has the distinct advantage that the lender will not have any say in the management of the business and will also not be entitled to any share in the profits that the business may generate. Conversely, the lender will also not be responsible for sharing any part of the losses which a small business may incur.
The main disadvantages of Debt Financing for small business financing include risk of forfeiture of assets pledged as security in case of failure to pay; higher rate of interest; likelihood of more time being required for credit approval and undue pressure on the entrepreneur which may hamper the working of the small business.
Main sources for Debt Financing or small business loans include banks, credit institutions, micro lenders, friends and family.
In Equity Financing as a means to small business financing, ownership interest partially passes on to the financer. The main advantage of this type of small business funding is that there is no burden of loan or interest payments. Further, the small business owner will not have to pay the financer (equity share holder) in case of any losses or failure of the business.
The main disadvantages of Equity Financing as a means to small business financing include dilution of control over the business; entitlement of the small business financing institutions or individuals to a share in business profits; compliance with federal and state securities laws in certain cases and compulsory intimation regarding significant business developments to the investors.
The main sources of Equity Financing for small business funding include angel investors, venture capitalists, friends and family.
3. Small Business Accounting
Small Business Accounting is just as important as business accounting for a medium or large business. In any business, the entrepreneur must keep track of his money. Towards this end, small business accounting helps you in the following ways:
- Small business accounting helps you know where your money is going by way of expenses, both revenue and capital;
- It helps you determine your margins judiciously and keep a tab on them;
- Small business accounting also helps you know which departments are performing well and which need your urgent attention;
- It helps you keep an eye on your creditors and debtors;
- It also provides you various M.I.S. reports from time to time to understand the various critical functions of your business in addition to providing you the financial reports for your lenders, investors and other stakeholders.
- Small business accounting enables you to continuously monitor the financial health of your business for immediate action, wherever required.
Accounting Software for Small Business Accounting
While bookkeepers, accountants, business tax experts and other key functionaries involved in small business accounting cannot be dispensed with, there are various combinations of accounting software available to take care of all your invoices, payments, budgeting etc.
The success factors given above will go a long way in ensuring the profitability and success of your small business, both in the short as well as the long term. However, each small business can also devise its own success factors as applicable to the particular business.
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