Strategies for Running a Successful Business
Operating Capital
Effective management of operating capital is essential to maintaining a healthy business. Your operating capital requirements are directly tied to the aging of your accounts receivable.
If it typically takes 30 days to collect payment, you should maintain at least one month’s worth of operating capital. The longer it takes clients to pay, the greater your capital needs become.
Prudent cash flow management can help bridge short-term needs, but it is vital that accounts payable remain current. A strong operating capital position, combined with timely collections, ensures stability and protects your business from unnecessary financial stress.
Financial Reporting
Management decisions are only as good as the information they are based on. Timely, accurate financial reports allow leaders to identify cost overruns, anticipate future cash needs, and recognize opportunities for reinvestment or savings.
A close, cooperative relationship between management and accounting is key. When communication flows freely, potential issues can be identified and addressed before they become problems.
Preserving the Corporate Veil
For small and mid-sized businesses—especially S-Corporations, LLCs, Partnerships, and Sole Proprietorships—it’s easy to fall into the trap of mixing personal and business finances. Maintaining a clear separation is essential to protect both the company and its owners.
Operate as if you were a large corporation:
Keep business and personal funds completely separate.
Use company credit cards, lines of credit, and assets solely for business purposes.
Maintain detailed records that demonstrate corporate independence.
Protecting the corporate veil is not only good practice—it’s a legal safeguard.
Distributions
Distributions should be made at management’s discretion, and only when excess earnings exist beyond current and anticipated business needs. They should never be made simply to satisfy an owner’s personal expenses.
In closely held companies where owners also manage the business, it is critical to separate personal wants from fiduciary responsibility. Failing to do so can quickly undermine a company’s financial health. In my experience, this conflict is one of the most common causes of small business failure.
Tax Considerations
Pass-through entities such as S-Corporations, Partnerships, and LLCs are taxed on profits—not on distributions. This means owners may owe tax on income retained within the company, particularly when the business is growing and increasing it's operating cash.
In some cases, owners may face a tax liability that exceeds the amount distributed to them. If this creates a challenging problem, conversion to a C-Corporation may be worth considering. While C-Corps are subject to double taxation (at both the corporate and individual levels), they offer better control over timing of personal tax liabilities.
Regardless of entity type, distributions should always be initiated by management decisions, not individual owner needs.
Compensation and Personal Needs
S-Corporation owners are required by law to pay themselves a reasonable salary. Many reduce their salaries to minimize payroll taxes and instead rely on distributions for income. This can create compliance and cash flow issues, especially when distributions are used to cover personal living expenses.
A more sustainable approach is to maintain a reasonable balance between salary and distributions—ensuring compliance while supporting both business and personal financial stability.
Sunk Costs and Decision-Making
A good manager knows when to cut losses. Investing in new projects or equipment carries inherent risk, and not every investment will succeed. The key is to avoid the sunk cost fallacy—continuing to spend money or time simply because of what has already been invested.
At every stage of a project, maintain the option to walk away. This mindset ensures decisions are made based on future potential, not past commitment, and protects company resources for better opportunities.
Industry-Specific Considerations
Every industry operates differently. In some sectors, volume drives profitability; in others, quality and selectivity are the keys to success. Business owners should clearly identify where their company fits and make strategic choices about which clients or projects to accept.
There is no obligation to serve every potential customer. A well-run company focuses on clients that align with its strengths, values, and profitability goals.
Billing and Collections
Consistent billing leads to consistent payment. Invoices and statements should be issued regularly so that clients develop reliable payment habits. Irregular billing leads to irregular cash flow and places unnecessary strain on operating capital.
Accounting Systems and Reporting Tools
Accurate, timely reporting begins with the right tools. Whether using QuickBooks or another platform, your accounting system should:
- Allow for a single point of data entry for expenses and payments.
- Generate accrual- and cash-basis reports from that data.
- Support job or class-based reporting to analyze profitability by client, service line, or project.
A robust accounting system enables management to instantly see where the company stands in terms of profitability, cash position, receivables, and liabilities—empowering confident, informed decision-making.
