It’s the title of a hit pop song, and a great question for business owners. What changes would you make in your small business if you suddenly won a large, profitable contract? Would an influx of cash change your goals, or would it simply even out the ups and downs of cash flow in your business?
Here are five suggestions to solidify your business foundation when good fortune comes your way. The tips below are also helpful in securing your company while you wait for your ship to come in.
Create/Increase Your Emergency Fund
Almost all small business owners have a finite amount of resources to run their companies. When disaster strikes or unexpected bills pop up, it can derail your progress—sometimes permanently. The best way to prevent this from happening is to create an emergency fund that is equal to six months of expenses in your business. That may sound like a lot of money, but you will be thankful for the safety net when you fall off the high wire and have a soft landing. Start today by figuring out the amount you need to save, and put something in the fund. The first step is usually the hardest part.
Pay Down Debt
After you start an emergency fund for your company, the next step is to pay down some or all of your business debt. It’s not as sexy as taking a nice trip or buying something for yourself, but having little or no debt will certainly help you sleep better at night. It also makes your business more attractive to receive a loan/line of credit in the event you need one in the future.
Invest in Your Small Business
Whether it’s investing in new technology, hiring more people, or opening a new location, if you can invest in your small business with cash as opposed to financing, it will put less strain on needing an immediate return on your investment (i.e. you won’t have the additional expense of a loan or line of credit to pay back while trying to grow your company). Review company goals with your team/business advisor and decide where to invest your money to get the best return. Make sure the investment will get you closer to reaching your objectives.
Celebrate The Wins
Once you’ve taken the first three steps, if you still have available funds, treat yourself and your team for a job well done. It’s important to celebrate the wins in business. One of my favorite things to do is take my team out to lunch or dinner and give them envelopes with personal gifts (e.g. spa package, weekend getaway, or tickets to a show or game).
Give Back/Pay It Forward
My last suggestion completes the circle of entrepreneurship. It is rare for someone to start, manage, and grow a company without assistance from other people or companies. Sometimes help comes in the form of a mentor or a business coach; other times it’s a friend or family member giving you an interest free loan to help get you started. As actor Kevin Spacey once said “If you’re lucky enough to do well, it’s your responsibility to send the elevator back down.” Take part of the money you earned and invest it in someone just starting out in business. Help them the way someone else helped you and good fortune should continue to knock on your door (if you believe in karma).
I often say that when life and business change on a dime, it’s rarely for the better. If you are cash rich today, take the time to solidify your foundation and spend/invest your money wisely. If you follow my five suggestions in order, you should be prepared for almost anything that comes your way in the future.