10 Ideas for Business Owners to Create a Thriving Company

It's a challenging world for small and mid-sized businesses, with just under half of all companies surviving more than 5 years (PDF) and about 2/3 folding after a decade.

To beat these odds, growing and de-risking your company will be critical. With smart planning, your business can also be a source of retirement income for you—and can even become a legacy for your family or community. Here are some ways to help you uncover hidden threats and enhance performance in your company so it can survive and thrive.

1 Track company cash flow

Just like managing your personal finances, balancing your business's income with its expenses requires tracking cash flow and looking for trends in spending and earning. There may be time when it experiences negative cash flow—especially if it's in the startup phase—but your company can't withstand this negative trend for long.

A common cause of negative cash flow is poor timing, particularly between accruing costs for your business and requesting payment for the goods or services it offers. For example, the time difference between when a purchase agreement is signed and the invoice is sent out can create negative flows. An easy fix is to invoice earlier or shorten the payment period.

To help identify these trends, make sure your financial professional prepares a statement of cash flows in addition to other business statements.

2 Trim costs to increase operational efficiency

Whether it's an economic downturn or expansion period, keeping an eye on costs can improve efficiencies and may have an impact greater than growing revenue. Keep in mind that profit margins don't always improve when sales increase because higher costs may result as a way to keep up with sales.

Instead of taking a companywide expense cut approach, consider a surgical one. Here are some good places to start.

• Reduce supply expenses. Shop around for lower supplier costs or discount prices by volume. You can even ask long-term suppliers for a lower price as a return on your loyalty.
• Cut production costs. Can you optimize resources and utilize all materials along your production chain? Look into selling leftover materials or creating a new product out of what was previously considered waste.
• Update marketing strategies. Digital marketing gives you more low-cost options to reach target customers. Consider building a loyal customer base digitally so you can offer discounts and referral programs to improve engagement.
• Narrow offerings. Limit your business's core services and products to those you do very well. Subcontracting less profitable activities may be an option, but don't shy away from cutting products or services that are no longer profitable.

With any cost-reduction strategy, opportunities to trim costs should be weighed against potential downstream impacts to quality, overall employee engagement and future business plans.

3 Have a stress-tested financial plan

As a business owner, you know the mental, physical and financial challenges that come with running a company. Add potential stress from times of economic turmoil, and the strain of poor financial performance or needing to make decisions quickly can lead to unintended consequences.

When stressful decisions arise, turning to a business financial plan can help. It serves as a guide that outlines a path to your company's short- and long-term goals. Sit down with a trusted financial professional to talk through potential paths based on your goals, then stress test your chosen option to ensure it can withstand unfavorable situations. Having an established plan mitigates the risk of knocking your long-term goals off course based on short-term circumstances.

A good financial plan for your business can:

• Help you manage your cash flow.
• Plan your taxes.
• Spot positive and negative trends in your company's finances.
• Prioritize expenditures to conserve resources.
• Measure progress.

4 Develop contingency plans

There's a difference between having a contingency plan and crisis management. One involves thought-out structure, while the other involves reacting unprepared. Contingency plans help you prepare for worst-case scenarios like a fire, flood, hurricane, data breach, ransom threat or employee strike.

A contingency plan that's practiced with tabletop exercises should be part of your business's operational strategy to ensure you have a well-communicated process in place. To create a contingency plan, you'll need to do some initial legwork.

• Identify and prioritize the resources your company can't do without.
• List potential threats to these critical resources and how they'd be impacted.
• Draft a step-by-step contingency plan for each resource that addresses the response to each type of incident.
• Distribute the plan, then use tabletop exercises to ensure there are no gaps.
• Maintain the plan on a regular basis, and ensure it's updated as your company changes personnel, technology and processes.

5 Have an updated business succession plan

Half of business transitions are involuntary, according to the Exit Planning Institute. Having a succession plan in place allows you to decide how the transition will progress and can improve your company's chances of survival in case of an unexpected transition.

Starting a succession plan for yourself as well as departments throughout your company can help keep the business running in times of unplanned transitions and departures. The first step is finding a suitable replacement, then spending time training and transferring knowledge to this person.

Having department succession plans in place can encourage communication, knowledge transfer and training across teams. In a large company, this means focusing on mid-level managers eventually taking over for executive management. In a family-owned business, it means focusing on the owners' adult children to ensure they can take over from their parents when the time comes.

6 Invest in human capital

Hiring and retaining great employees is just as important as focusing on your customer base. It encourages a solid culture people want to be a part of, and it minimizes your turnover expense—which can be costly.

Help prevent employee turnover by encouraging regular career conversations between employees and managers to ensure talent is in the right seat and developing the right skills. Also focus on fostering a team environment by planning team-building activities and encouraging communication rather than competition among employees.

On the compensation front, have a long-term strategy in place to keep your workforce incentivized. Consider forming compensation arrangements that are restricted or vest over time to ensure employees have a good financial reason to stay.

7 Keep accounts receivables current

Late accounts receivables can create a host of problems for companies—passively waiting may result in no payment, and hiring a collections agency means losing out on the full amount you’re due. And if your bank is using accounts receivables as a collateral item, long-outstanding receivables may be disqualified as collateral as a way to extend credit.

Whenever customer payments due lengthen beyond one reporting period, you must be willing to address the situation quickly. Here are some strategies to improve your accounts receivable management.

• Switch to software, if you haven't already. Find a program that can automatically bill, notify and integrate payment processing to cut down time communicating with customers and enhance the overall experience.
• Track payment performance. Knowing how quickly your company collects payments, following the Collection Effectiveness Index, and having a clear picture of the days sales are outstanding and average days delinquent can help you keep a pulse on how your company is performing—and indicate what, if any, action should be taken.
• Have prompt billing and collections processes. Be sure they're firm and repeatable, and tighten timelines for invoicing and collections to keep payments flowing. This lets you see when situations deviate from the norm, and it can also help you spot new trends.

8 Create and enforce expense policies

A company expense policy is an often overlooked but essential process to formalize. Taking the time to write down a policy can help iron out a few things with your employee base, including:

• Helping to prevent overspending on things like travel, especially in times of high revenue.
• Reducing repeat questions and approvals by employees to their managers.
• Minimizing gray areas for expenses, which can help improve employees' understanding of which expenses will be approved.

A good expense policy will be thorough, equitable, clear, easy to interpret, easy to find, and align with the law and regulations. It should also cover budgets, reimbursements and suitable payment methods. There are many free expense policy templates available online as a starting point.

9 Look for ways to reduce your tax bill

A top concern for many business owners is understanding how to take advantage of all of the tax credits and deductions available to them. Here are some lesser-known ways to help minimize your tax liability.

• Create a retirement plan. Business owners often have most of their net worth tied up in their business, but setting aside retirement funds each year can help diversify and protect your assets—and lower your tax bill. In 2023, a small business owner can contribute up to $66,000 in retirement contributions.
• Restructure the business. If your company is operating as a sole proprietorship or S corporation, consider switching to a limited liability company, or LLC. You may be able to eliminate the employer portion of FICA taxes with this structure.
• Integrate your workforce with independent contractors. Contractors can provide quality work without the overhead of employment taxes and healthcare costs. However, be sure to obtain a legal opinion about whether a hire would qualify as an employee or independent contractor.

Other areas to look for tax credit opportunities include payroll, research and development, and real and personal property valuations. Having a qualified tax advisor review your returns may be a good way to conduct a comprehensive evaluation of your situation to identify any additional saving opportunities.

10 Create an advisory board

Just as you have specialists like attorneys and accountants for your business, an advisory board is a group of specialists who act as a group mentor. A board is typically comprised of leaders who have experience and influence in business and industry—and who are able and willing to help you and your company become successful. By combining their experiences and resources, you have access to knowledge and networks that would take years—and many mistakes—to build on your own.

Potential downsides to keep in mind include sharing proprietary information about your company, taking time to form the group and potentially spending money to gather for in-person meetings.

The bottom line

These ideas all touch on some core concepts to keep in mind as you work toward improving your business.

First, keep an eye on key performance indicators like cash flow, accounts receivable and expenses to pick up on changing financial trends more easily. Having these easily accessible and in one place can help you build the habit of checking regularly.

Second, don't forget about your future. By setting up a retirement plan for yourself and a succession plan for your business, you can feel even more secure in your daily work. And having an advisory board can help you develop both as a business owner and a leader.

Third, seek out risk that's ingrained in your business to understand it, reduce it and plan for it. Whether this in the form of your financials, location or industry, knowing what you may deal with at any given time can shore up your business for anything that comes its way.