Decisions Small Business Will Face in 2005

What are some of the important financial decisions that small business owner will face in 2005? There are numerous issues such raising capital, accounting and bookkeeping, cash flow management, poor inventory management, over investments in fixed assets, poor credit arrangements, unexpected growth, and other economic factors that will affect a small business's finances. The U.S. Small Business Administration has seen lots of small businesses com and, unfortunately, go. According to the SBA, over 50% of small businesses fail in the first year and 95% fail within the first five years ("Why Small Businesses Fail", 2005, p. 1). With this fact in mind, one should seriously consider gaining a thorough understanding of finances and the effects it will have on their businesses.

In dealing with raising capital, one should consider how important his/her credit profile is to the loan equation. A small business should always strive to stay in good standing with all creditors, not only to gain favorable credit, but sometimes to gain cost cutting deals from just being a good customer which ultimately affects profits/losses. Debt-to-Income ratio is another important factor in raising capital. If your business has a high debt ratio, then you become a high risk investment. The most important issue in raising capital is if your request for funds logical and thoroughly justified. Lenders are in the business to make a profit, therefore, a small business that appears to lack good organization and direction will fall short of acquiring the necessary funds to start or grow. If your business has problems with acquiring a loan, one should consider a SBA loan program that lends to small businesses that are unable to secure financing on reasonable terms through normal lending channels. The loan programs are operated through private-sector lenders that provide loans which are, in turn, guaranteed by the SBA--the Agency has no funds for direct lending or grants ("Money for a Small Business", 2005, p. 1)

People keen to start their own businesses sometimes forget about the managerial and administrative skills necessary to run a business; if you're going to start a successful small business, you need to have or develop expertise in money management, managing people, directing business operations, and directing sales and marketing operations ("Thinking of Starting A Small Business", 2005, p. 2). Having a good understanding of money management is an excellent area to strengthen, given one of the main reasons for businesses failing is poor money management ("Why Small Business Fail: SBA", 2005, p. 1). Managing people has a tremendous impact on a company's finances because human capital is very expensive, especially