Understanding Small Businesses

Small businesses are the backbone of the US economy, employing nearly half of the American workforce and representing 43.5% of America’s GDP. According to the Small Business Administration, there are over 33 million small businesses in the United States, making up 99.9% of all US businesses. These businesses play a critical role in driving economic growth, creating jobs, and stimulating innovation.

Small Business Statistics

• 61.6 million people are employed by small businesses, representing 45.9% of the entire US workforce.

• Over 80% of small businesses operate without any staff.

• The average small business owner salary is just 16% above the national average mean wage of $59,428.

• Millennials own just 13% of small businesses in the US.

• More small businesses are owned by males than females, but the increasing percentage of female-owned businesses shows a positive shift towards greater gender equality in entrepreneurship.

Small Business Challenges

Despite their importance, small businesses face numerous challenges that can hinder their growth and success. Some of the most common challenges include:

Common Reasons for Small Business Failure

• Lack of market need: 38% of small businesses struggle due to running out of capital or the inability to secure additional capital.

• Running out of capital: 38% of businesses fail due to exhausting their cash reserves or the inability to secure additional capital.

• Poor management: 30% of businesses fail due to poor management, including inadequate planning, insufficient financial management, and ineffective marketing.

• Increased competition: 20% of businesses fail due to increased competition, including the rise of new businesses and the expansion of existing ones.

CFO Advisory: Using Data in Your Small Business Financial Strategy

Small businesses face unique challenges when it comes to financial management and growth. Limited resources, cash flow management, and lack of financial expertise can hinder their ability to thrive. To overcome these challenges, small businesses must implement strategic financial management practices, track their progress using key performance indicators (KPIs), and consider the guidance of a Chief Financial Officer (CFO).

Small business growth hits roadblocks, and leveraging financial expertise helps break through and gain profits. Effectively managing financial resources is crucial to engage the target market and ensure long-term sustainability.

We worked with a company generating $5 million in annual revenue. They were losing nearly $10,000 a day. We worked to find revenue leakages, open A/R, and reduce payables. Through using data, we turned the business around in 90 days.

From revenue, payroll, and operating expenses, your financial data tells a story of strengths or weaknesses in your organization. The economic strategy needs to establish KPIs to ensure a smooth integration.

The Role of Strategic Financial Management for Small Business Owners

Strategic financial management plays a vital role in the success of small businesses. According to the “Strategic Finance Management – Westport Financial” blog, it involves aligning financial goals with the overall business strategy. By setting clear financial objectives that support the business’s long-term goals, small businesses can make informed decisions and allocate resources effectively.

Strategic financial management can also help small businesses navigate the labor market and hiring expectations. This strategic approach allows for better planning, forecasting, and risk management to ensure sustainable growth.

How does a fractional CFO help a small business?

• Develops strategic financial plans 

• Prepares regular forecasts and budgets 

• Secures financing and capital before the firm needs it 

• Aligns performance expectations and compensation to financial outcomes 

• Works with other departments and divisions to accelerate performance 

Understanding and Utilizing Financial KPIs

Financial Key Performance Indicators (KPIs) are essential for small business owners to track their progress and make data-driven decisions. The “Small Business Financial KPIs” blog emphasizes the importance of selecting relevant KPIs that reflect the specific goals and challenges of the business. Examples of common financial KPIs include profitability ratios, cash flow indicators, and customer acquisition costs.

By regularly monitoring and analyzing these KPIs, small business owners can gain valuable insights into the financial health of their company and make adjustments as needed to achieve their growth objectives. The smallest businesses, often those with 0-4 employees, face unique financial challenges and rely heavily on personal savings, making the use of KPIs crucial in addressing these challenges.

How can a small business use financial KPIs?

• Setup weekly meetings with key leaders 

• Leaders are responsible for reporting 2 or 3 KPIs each week 

• Create action plans with KPIs that are below the benchmark

• Monitor trends and historical data, if available, to look into the future 

• Communicate with all people, processes, and systems that are inputs to the KPI 

The Impact of a CFO on Small Business Growth

The role of a Chief Financial Officer (CFO) is not limited to large corporations. Even small businesses can benefit from the expertise and guidance of a fractional CFO. As discussed in “The Role of a CFO in Small Businesses: Unlocking Growth with Westport Financial,” a CFO can provide valuable financial planning and analysis support.

They have the knowledge and experience to develop economic strategies, optimize cash flow, manage risk, and navigate complex financial situations. By partnering with a fractional CFO, small businesses can gain access to professional financial insights without the cost of hiring a full-time executive.

Post-pandemic, there has been a significant increase in business applications, driven by higher household wealth and policy support, which has positively impacted small business growth. Increased optimism among small business owners can lead to improved lending conditions for smaller businesses, as confident economic forecasts often precede easing credit scenarios.

How does working with a fractional CFO work?

• CFO and client relationships begin an onboarding period to develop initial plans, set expectations, and understand the organizational dynamics within the client firm. 

• Establish a regular cadence of meetings and reports (KPIs)

• Develop communication plans for the financial data and reports to reach relevant staff

• Regularly review and update strategic plans and associated action plans 

• Have open access to your CFO advisory for over 50% less than a full-time salary 

Integrating Financial Strategies for Success

Small businesses should integrate the best financial strategies and trends into their operations to achieve sustainable growth. Insights from “Scaling Your Business: The Best Financial Strategies in 2024” and “Top 5 Trends in Small Business Finance” can guide small business owners in this endeavor. These blogs highlight strategies such as diversifying revenue streams, optimizing cost management, embracing technology, and prioritizing financial planning.

By adopting these strategies, small businesses can position themselves for long-term success and overcome the challenges that hinder growth. Veteran-owned businesses, which constitute 6.1% of small businesses, bring unique skills and experiences from military service that significantly contribute to the economy and entrepreneurial success.

How do you achieve financial success for small businesses?

• Establish a plan for your business and constantly evaluate your results 

• Treat your business like it is the only thing you have in this world – protect the brand

• Review revenue and expenses to ensure you know where dollars are going 

• Financial success is simple: accurate books, regular forecasting and analysis, and open communication about the next steps. 

Small Business Growth and Development

Despite these challenges, many small businesses are able to grow and develop, driving economic growth and creating jobs. Some of the key factors that contribute to small business growth and development include:

Small Business Innovation and Technology

• Adoption of new technologies: Small businesses that adopt new technologies, such as artificial intelligence and cloud computing, are more likely to experience growth and success.

• Innovation: Small businesses that innovate and develop new products and services are more likely to experience growth and success.

• Access to capital: Small businesses that have access to capital, including loans and investments, are more likely to experience growth and success.

• Support from local economies: Small businesses that receive support from local economies, including government initiatives and community programs, are more likely to experience growth and success.

Small Business Growth with Westport Financial

The success of a small business rests on its ability to effectively manage financial resources, track progress through KPIs, and seek expert guidance. Strategic financial management aligns financial goals with business strategy, enabling better decision-making. Utilizing KPIs helps track progress and make data-driven decisions.

Whether full-time or fractional, the impact of a CFO must be considered when it comes to financial planning and analysis. Small businesses can achieve sustainable growth and overcome challenges by integrating financial strategies and embracing industry trends.

Small business leaders face significant challenges in the current labor market, including difficulties in finding and retaining qualified workers amid a labor shortage. They are implementing strategies such as offering flexible working conditions to attract new talent.

Consider Westport Financial’s services as a trusted partner on your financial journey. Their team of experienced professionals can provide expert guidance in strategic financial management, KPI utilization, and CFO insights.

Ready to take your small business to the next level? Contact Westport Financial for a fractional CFO services and financial strategy planning consultation today.

Let us help you navigate the complexities of financial management and achieve your growth goals. Visit westportfinancial.com/news for more insights and resources on small business finance.