Small businesses need to adapt their business plans

A summary of what happened: During the first part of the decade (2001 - 2006) small businesses found there easily manageable business environment. Revenues increased by just 10% or more each year. Owners of most small businesses are highly skilled in leadership, management, personality has a sale and \ or a technical skill. These skill sets are a good fit and able to accelerate revenue growth in the time that growth occurs.

Small businesses have seen an increase in sales income and rising debt on the balance sheet. In general, small businesses focused on growth (revenue growth only) and neglected parameters accounting. The decisions made by growth of small business owners omitted the risks of the company's overall financial position. A result for small businesses has increased its productive capacity. The company expanded beyond the capacity through the purchase of fixed assets (vehicles, equipment, furniture, etc.) through debt obligations. Some companies in these purchases being attracted by tax benefits. The tax benefits were paid from the debt, which means that it has received a deduction in the year they made the purchase, but not the cash flow was over the next few years. This would eventually backfire on small businesses from having cash disbursements, without an offsetting tax deduction (ie, repay the debt is not tax deductible).

Small business owners generally choose to become a "flow through" entities for tax (s-corporation and partnership). These entities, in general, non-tax equity distributions (ie dividends). The owners of small businesses from the tax rules used to exhaust all the capital in their company. This worked efficiently during periods in which the entrepreneur could fuel growth through debt. This is not the case and small businesses can no longer depend on loans to financial institutions, small businesses will need to fuel its growth through their own capital. This means owners will have to sacrifice leaving money in the company (not taking the distributions of capital).

Overall, from 2002 to 2006 (perhaps in 2008) is an enterprise was basically effortless. Risk has been factored out of the equation. Group that began in secret in Group I think when no one agrees or not is banned for the disagreement. The royalists were considered pessimistic in the sea of ​​optimism. The realist would prove the winner, but there would be no celebration.

A prediction and a solution for the future: The economic environment has changed and will continue to be difficult for several years, according to economists and articles in Barron. The business model of the past (revenue growth easier, a lot of debt and little equity) no longer matches the current context. Small businesses have had their income reduced by up to 30% (if not more) and have had not to renew the financial institutions and \ or call loans. Small businesses will relocate its budget surpluses to include high power (especially cash), reduce debt and increase their equity as well as rethink their strategy.

Small business owners need to meet immediately with their board of directors' and \ or consultants (or create a border) to start developing a new business model. The new business model will be necessary to help reposition the financial position and business of their company to survive in the coming years. Small businesses must become more innovative and efficient in order to ensure that participants in the table have the ability to be creative and the environment to speak freely (to tell you what you need to hear, not what you want to hear). Speaking of what you may not want to hear, a lot of sacrifice and longer hours may be warranted in the new business model .......