Small business weakness: Not understanding the numbers

We likely should listen when Dave Gay talks about suburban small businesses: Less than two months into retirement from his 21-year role as head of the Illinois Small Business Development Center at College of DuPage, Lisle, Gay responded quickly when I asked where the weaknesses might be in small businesses.

Topping a shortlist: “A lack of understanding of financials and what the numbers say,” Gay begins. Too many business owners “just don’t understand their financial records,” he says.

Next, but related: Lack of a transition plan, especially among now-aging Baby Boomers hoping their businesses will fund retirement.

Those aren’t new issues, of course, but Gay is somewhat more likely than others to put at least part of the blame on the business owner.

It’s true that many of us don’t understand, and therefore don’t like to bother with, numbers. We too often “just take rote information and send it to the accountant” without sitting down for a discussion, Gay says.

Consequently, owners are “muddling through, not getting a clear read” on their businesses’ financial situation. Gay’s concern is that “A business that seems to be moving along pretty nicely today may be on the verge of bankruptcy tomorrow.”

Part of the problem, Gay says, is that “The advisers are there, but compartmentalized. We have an accountant, lawyer, estate planner and the rest, but they all work in little silos.”

Most of the time, the advisers we’ve chosen are “ready, willing and able to help, but they’re still just looking up in a silo mentality.” What the business owner needs to do, Gay says, “is be the conductor of the orchestra. You need to think to the future, and use the numbers as your guide.

“You’re paying the attorney, accountant and planner. Roll the SBDC’s free advisory services into the equation. Form an advisory committee.

“It’s a planning thing,” says Gay, who over the years has focused more than anyone else I know on the need for small business planning.

Many of us don’t like planning any more than we like numbers, but Gay is spot on when he says that “It’s the research and understanding that comes from the planning” that is valuable.

Planning and numbers “aren’t fun, but (the business owner) needs a basic understanding” to develop a road map for the future, Gay says.

For many entrepreneurs, the future includes a rapidly approaching retirement. That’s Gay’s second concern.

“It’s transition time for many businesses,” Gay says, “but there is no continuity plan. No one has talked to the kids, who may or may not want to buy in, about taking over the business, and there may be no employees who want to buy either.

“If you’re going to want to get out, you should look at the situation — the business and your retirement hopes — at least five years in advance,” Gay says.

Ÿ Jim Kendall welcomes comments at JKendall@121MarketingResources.com

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