What do small businesses need beyond banking?

Some say to beware of conventional wisdom. Why? Because wisdom isn’t always conventional. Here’s an example. A traditional assumption among many old-school ways of managerial thought says small businesses should use essentially the same management principles as big businesses. They simply scale back and all will be well. Many say this notion is supported by the fact that small companies are much like big companies, except that small businesses have lower sales, smaller assets, and fewer employees. But as a community bank serving small business banking customers across Utah, we can tell you that all businesses are not created equal.

Small businesses operate in unique environments. And there is one critical difference between small and large businesses that directly influences their operations and their success. And that’s money and resources. The very size of small businesses creates a special condition—which can be referred to as resource poverty—that distinguishes them from their larger companies and the management approach that defines larger operations.

What is resource poverty?

But what is resource poverty? Put very simply, it is defined by the lack of time, finances, and human resources. When it comes to comparing large businesses to small businesses, larger operations simply have a lot more resources than their smaller counterparts. But why? Well, small businesses tend to be clustered in highly fragmented industries like manufacturing and retail. And they have competitors that are cutthroat in their pricing and discount schemes. It’s a lot for a business without a ton of resources to contend with.

Let’s also consider how small business owners pay themselves. The owner’s salary in a small business represents a much larger fraction of revenues than in a big company, often such a large fraction that little is left over to pay additional managers or reward investors. Similarly, small businesses cannot usually afford to pay for the kind of accounting and bookkeeping services they need, nor can new employees be adequately tested and trained in advance.

It’s no great secret that small businesses are much more susceptible to external factors outside their control. Large businesses are much more insulated from outside factors due to their larger resource share. More money, more employees, more data – just more. Small companies in Utah and beyond simply don’t have the footprint they need to manage big changes in government regulations, tax laws, and labor and interest rates. As a result, these factors usually affect a greater percentage of expenses for small businesses than they do for large corporations. This can in turn limit small business growth.

Overcoming limitations o achieve small business growth

Such limitations mean that small businesses need to be extra careful. In many cases, they may not be able to survive mistakes or misjudgments in the marketplace. So, what can small businesses do to overcome the problems posed by resource poverty? Certainly, there are no easy answers. But we believe there are some special financial management tools available to small companies that can enable them to make the most efficient and practical use of the resources they do have. Making sound financial decisions – even with fewer resources – will help you in the long run.

Small business owners usually agree on one thing. You must invest in your operation if you want it to grow. To them, however, the need for cash seems only temporary. They assume if they grow profitably, they will get more profits and more money as a result. Nearly every small business owner hears at some point the financial principle that cash flow equals net profit plus depreciation and other noncash expenses. If your business is growing rapidly, however, you may assume that this principle does not apply to you. Do not be deceived. Following sound financial management principles is essential for small business success.

Small businesses in Utah contending with these external factors need a business banking partner they can rely on. We’re proud to work with small businesses all over the state on their business checking, savings, treasury management, and SBA loan services. And since we are Utah’s premier community bank, we understand what small businesses need. They make up the core of our Utah-based business banking customer base and we are proud to serve their needs. If you are a Utah-based business in need of a community banking partner you can rely on, contact us at First Utah Bank today.