In 2016, the U.S. small business sector saw an increase of 1.8 million new jobs.
And with any new venture, problems arise when business owners don’t manage their money properly for the future.
“The most common mistake that small business owners make is that they don't understand their cash forecast, and business can be going very well, but you can run out of money,” Karen Mills, the former administrator of the U.S. Small Business Administration (SBA) during President Barack Obama’s presidency, told Yahoo Finance (video above).
‘They create a path to the American dream’
There are 30.7 million small businesses in the U.S. and approximately half of America’s private workforce are employed at a small business–which is defined by the SBA as a company that employs 500 people or less.
“They create a path to the American dream, so it’s not only part of the economy, but it’s part of economic mobility,” Mills said.
Mills idea of the American dream has its roots from a relative’s journey in America.
Mills’ grandfather, an immigrant from Russia, started a textile business with just two machines in the back of a Boston shoe shop. She worked for him during her college years and saw the business grow from one man taking care of his family in a new world to a company employing hundreds of people taking care of their families.
“I grew up with him, and he would say to me, ‘Our family doesn't work for other people. Our family grows their own business,’” Mills said. “And to me, that's the American dream, the ability to come to this country without anything, without resources, without advantages, and have access and opportunity.”
‘This is actually a terrific time to start a small business’
Something smaller businesses lose sight of — especially when they have to contend with with bigger corporations such as Amazon — is not being prepared for obstacles to arise with their starting investment, like stocking up their inventory and being ready for late payments from customers or shipments.
“It's very important for a small business owner to understand where their business is going, what's the customer need that they're going to meet, and how are they going to survive financially,” Mills said. “What are going to be the resources that they're going to use to start the business? How are they going to generate the resources they need to stay in business and pay their employees?”
She noted that in the era of FinTech, small businesses have more tools than ever to establish their foundation.
“This is actually a terrific time to start a small business because the resources that you need to begin are getting more and more identifiable and cheap because of technology,” said Mills.