What sets growing businesses apart from their small-biz brothers and sisters whose revenues are flat or falling? The Guardian Life Small Business Research Institute wanted to find out so it commissioned a study to compare what owners of small firms with rising 2011 revenue did differently than their counterparts at businesses with flat or declining sales.
The results are a kind of road map to business practices that can really make a difference between growth and stagnation at a small business. Some of this boils down to simple common sense, but you may find a few things surprising. Here are some revenue-boosting practices that stood out as helping support growth:
• Planning ahead. Small-business owners who managed to grow in the face of economic weakness were adept at planning for what might go wrong, rather than simply reacting to trouble. When times were good, these well-prepared biz owners squirreled away cash reserves and opened credit lines that helped them weather tough times without having to make cutbacks. In contrast, owners with declining revenue found themselves madly rushing to slash expenses as difficulties mounted.
• Borrowing strategically. Growing businesses understand that borrowing can be a good thing (especially since interest is tax deductible) if the money is put to good business use. And the use that has paid off best for growth firms is research and development. About 58 percent of high-growth, small-business owners report that R&D-type investments yielded the most positive returns. On the other hand, borrowing to open new offices, build production facilities or add new capabilities was more likely to correlate with a decrease in profitability rather than an increase. Likewise, borrowing to add staff was generally a money-losing endeavor and not a good approach.
• Sharpening management skills. Professional development also leads to more income for small firms. Business owners who improved their skills at strategic planning and money management, for example, had a better chance of achieving revenue growth than those who didn’t. But the most compelling results came from those who got better at hiring the right people. Team-building skills, it turns out, are great for boosting a bottom line.
• Getting good advice. Small-business owners have always relied on advice from friends and fellow entrepreneurs. That never changes. But the best of them also make sure they plug into a savvy accountant or other financial advisers to provide the kind of professional fiscal advice that every business needs, no matter what size. For example, 68 percent of businesses with rising revenue sought out financial advisers, while only 51 percent of those with declining revenue took that step. •
Daniel Kehrer can be reached at