If you’ve ever wondered if there are certain qualities that make for a successful small business, you’re not alone. While there’s no magical formula for being financially healthy, the “Small Business Financial Health Analysis” (PDF), put together by The Federal Reserve Banks of Chicago and San Francisco, Pepperdine University, and online lending resource FundWell, shows there are four practices that successful businesses share.
For the survey, more than 900 businesses were asked about their knowledge of financial products, the credit experience of business owners, and financial planning and management practices. Here are the four practices that were common among successful small businesses.
1. Strong Knowledge of Credit Products — And Experience Using Credit
If terms like inventory financing, accounts receivable financing, or trade credit make you scratch your head, you might want to bone up on those topics.
The survey showed that the majority of businesses in excellent financial health were very knowledgeable about financial terms and credit products.
And while taking out a business loan isn’t necessarily an indicator that a business will succeed, 75 percent of those surveyed with excellent financial health have, indeed, secured financing from a bank.
2. High Level of Unused Credit Balances
Financially healthy businesses have credit to spare. Meaning, they do not max out their credit cards and loan borrowing capabilities.
Conversely, the less successful businesses tended to max out — 65 percent of those in poor financial health had no credit available, at all.
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