Harvard Business School senior lecturer, Steven Rogers, explains how entrepreneurs can understand their financial statements and how to access capital.
My entrepreneurial friends, during these tough pandemic times, my book ENTREPRENEURIAL FINANCE is one of the most impactful tools that you can use to start-up, survive and grow your small business!! Being a smart, knowledgeable business owner increases you chances for successful long-term profitability!
One of the things highlighted by the coronavirus pandemic that we are now experiencing is the importance of entrepreneurs and small businesses to our country’s economy. Almost half of Americans are employed by a small business, and 80% of those companies employ 20 people or fewer. All this information points to the fact that the country needs more entrepreneurs who will create jobs and we desperately need the country’s small businesses that presently exists, to survive this pandemic, and grow afterwards.
But entrepreneurial creation and survival cannot happen simply from passion. It is imperative that entrepreneurs have skills that can help them navigate through the choppy waters of all the stages of entrepreneurship which includes Ideation, Proof of Concept, Start-Up, Survival, Stability, Growth and Exit. I believe the most important skills needed are in finance. And a fantastic tool that every entrepreneur should use is my book, ENTREPRENEURIAL FINANCE. It will help entrepreneurs understand their financial statements and how to access capital.
I have spent an enormous number of hours over the past couple of months counseling business owners about the importance of using their financial statements as practical tools to steer their companies during this time of uncertainty. Specifically, their focus should be three-line items in their income statement and balance sheet.
The first should be cash on the balance sheet. As I have repeatedly said, “depending on your gender, cash is always king or queen!” During times of uncertainty every business needs a strong balance sheet that is heavily endowed with as much cash as possible. This asset is needed to pay short-term bills AND take advantage of new business opportunities that may arise. For example, cash could be used to buy a new piece of equipment that is being sold at a discount due to the slow economy.
The second item of focus should be expenses on the income statement. During tough times, all entrepreneurs must pay close attention to their expenses. In fact, it is standard operating procedure during a time when a business is facing a decrease in revenue, to begin reducing as many expenses as possible, without harming the company’s quality of service or products. Most people tend to believe that they can only reduce their variable expenses, such as material costs. It is a variable cost because it increases or decreases with the company’s volume of revenue. But those are not the only expenses that can be reduced. The entrepreneur can also reduce fixed costs. For example, one fixed expense that can be reduced is the mortgage. It is “fixed” because its cost is not tied to the company’s revenue. The expense always stays the same. During these tough economic times, most banks are agreeing to allow companies to delay paying their real estate mortgages for up to 3 months. To make this happen, the entrepreneur should ask her mortgage holder for a three-month forbearance.
Finally, the revenue line item on the income statement should be addressed by the entrepreneur. While most entrepreneurial firms are closed and losing revenue, there are some actions that should be taken to generate new lines of revenue. First, every entrepreneur should use social media to communicate with his customers. Give a status report of your company. Your customers are synonymous with revenue. Let them know your plans for re-opening. Inform them of your ideas about offering new services. Let them give you feedback via a survey.
Another way that entrepreneurs should stabilize and grow revenue is to begin collaborative thinking with your management team and employees about introducing a new product or service that solves a problem. This is the foundation of innovation; identifying and solving a customer’s problem. For example, Wbd Marketing in Chicago makes my promotional banners. They have now pivoted to making social distancing signage that goes on the floors of retail operations like grocery stores.
My entrepreneurial friends, this is the time to sharpen your entrepreneurial finance skills and knowledge. Please learn all that you can about the aforementioned financial statements and myriad of other topics that are key to entrepreneurial success. My book is a great tool that should be read and used by every entrepreneur during these times.