What are the most important things to know when starting a small business?

by Debi Enders

When you’re launching a small business, what you don’t know can hurt you. Here are three of the most underappreciated things to keep in mind:

1. Every business needs a plan. Many small-business owners think they need a business plan only if they need funding. They’re partially right. Banks and other investors will want to review your plan. It helps them understand your business, team, goals and marketing strategy for getting where you wish to go. However, lenders and investors are not the ONLY audience for a business plan. The more important readers are YOU and your employees. Committing your plan to paper makes it easier to manage your business, track progress and assess individual performance.

2. Cash flow is king. Cash flow refers to the money moving in and out of a business each month. The ability to generate it quickly is an important indicator of small-business success. Cash flow includes the funds coming in from customers who buy your products or services as well as the cash used to pay expenses, like rent and taxes. If more money comes in than goes out, you have positive cash flow. If more cash is going out than coming in, you have inadequate cash flow. A consistent lack of cash is one of the biggest reasons small businesses fail.

3. Finding the right bank matters. Taking the time to find a good banking partner can pay long-term dividends. You may think, for example, that a small bank is best for a new business. But a larger bank may be better equipped to grow with you. Interview bankers and look for a strong adviser and advocate. Seek a financial institution that offers a full range of small-business banking services — from electronic accounts payable solutions to letters of credit — and the lending capacity to support your growth.

Debi Enders (debi.enders@commercebank.com) is vice president, small business banking at Commerce Bank.