Written by Tim Sernett, Accounting & Finance Advisor for SMBs | Owner at Financial Optics Inc | Entrepreneurship enthusiast | Dad | Sports nut | Tuition paymaster

Two recent meetings with clients have reinforced why I respect small business owners and the risks they’re willing to take.

In both situations, these small business owners were willing to risk profits and cash flow in the short term in order to put their companies in a better position for the long term.

It’s important to understand that there’s absolutely no guarantee that the risks will pay off, and if they do pay off it will mostly be due to their hard work and perseverance to reach the desired end result.

Both companies are increasing staffing at a time then there’s no guarantee that increased business will be there to absorb the additional expenses.

For one company, the motivation is to increase their expertise and provide a higher quality of service for their clients. They decided to niche the business to serve a certain industry, which meant changing their marketing focus and turning down business from clients that didn’t fit the niche. It also meant scaling up their staff in both size and skill level (meaning costlier base salaries) to offer more expertise, take on larger projects and be in a better position to scale the company.

For the other company, the motivation was to bring on more capabilities in order to be in a position to take on more business and allow ownership to better focus on their strengths.

So how are we helping make it easier for them to live with the risk they’re taking on?

Simply put, we’re helping them visualize the financial impact of the risk through financial forecasting. In both cases, we’re forecasting our detailed monthly income statements and balance sheets in order to understand the full impact of the losses in the short term.

This allows the business owners to be proactive in answering the following questions:

  • How much cash will I need to take on the risk?
  • When are we going to need the cash?
  • Where is the cash going to come from?

Obviously, there’s value in having this financial foresight, but the real value is having a roadmap to make sure you’re staying on course.

Monthly detail comparisons of actual results-to-planned results allow for quick adjustments.

This monthly analysis provides frequent accountability, reinforces the WHY behind the risks, reaffirms if the risk is worth taking, or helps us decide if we should reassess and take a different path.

Most entrepreneurs are playing the long game. They’re not interested in the short term payoff because they understand there’s no such thing as overnight success. They’re willing to invest in the hard work that risk-taking requires. It’s in their nature. And those are all things I respect about entrepreneurs.

With that said, it sure helps to have some financial foresight into what the risks look like in the coming months…that also makes it a little easier to sleep at night.

Thank you for taking the time to read the Financial Optics blog! If you have any questions about this post or any other questions, give us a call at 913.649.1040.