Telling good credit risks from bad.

I made a presentation yesterday to a group of credit managers wanting to know more about the challenges facing small business – and how to tell good credit risks from bad.

That’s pretty hard to do, since the future can’t be known, small businesses’ finances tend to be opaque to anyone from outside, and, of course, because there's often only a very thin line between success and failure.

But I took a shot at it. Based on my experience as a small-business writer, researcher, editor and consultant, I came up with a list of nine characteristics of a business (or its management) that tend to correlate with small business success. I’m sure there are many more (leave a Comment if you want to suggest some), but here is my list:

* having (and better still, actively revisiting) a current business plan
* access to outside capital
* the owner has a college, university or graduate degree, or substantial industry experience
* the owner has previously run a business
* support of a board of directors or advisory boards
* being founded or run by two or more partners who possess complementary (not duplicated) skills and experience
* exporting their products and services to at least one other country
* the company is actively adopting automated systems and proven processes to become more efficient – giving the owner more time to work ON the business rather than IN it.
* the company is involved at the intersection point of two or more fundamental trends (see earlier post: Where Trends Converge).

To get a feel for the owners’ commitment to the growth and success of their business, I proposed asking them these four questions:

- Tell me about your business plan. How often do you update it?
- What processes are you developing to make the business independent of you, day-to-day?
- Who are the key people in your organization, and what are you doing to make sure you retain them and keep them motivated?
- Do you have a succession plan to ensure that you develop key people, and that the business will be in good hands if something should happen to you?