Small businesses are often hailed as the backbone of the versatile American economy. Millions of laborers depend on new businesses to keep themselves financially afloat, and starting a business is a time-honored and proven way to climb the economic ladder. It’s hard to imagine a reality in which starting a successful business is not a financial dream for many Americans.
Despite the importance of small businesses to the larger economy, studies repeatedly demonstrate that most businesses eventually fail. A successful startup business requires quite a bit more than a stellar product of service. According to leading financial experts, businesses built to last possess leaders willing to forgo quick money in favor of a solid long-term investment and wealth-building strategy.
Curtis Ray is the President and CEO of SunCor Financial, a financial consulting company based out of Arizona. Ray is also a big proponent of this small business economic philosophy. He has spoken on several occasions about the vast implications of compound interest math for individual finances. According to him, proper use of secure investment with compound interest can help people to take control of their finances and plan for a successful early retirement.
But Ray has also applied this belief in secure long-term investment possibilities to businesses and their owners. In order to take advantage of the math of compounding interest, this financial expert warns that businesses should avoid risking long-term financial security for large short-term gains. Doing so, according to Ray, allows businesses to build wealth steadily and safely over time. Many business owners seek to maximize profit in the first few quarters of full operation. While this might appear to be intuitively good, taking risks with leveraging at this critical point in a business’s development can prevent a company from building wealth in the long-run.
Curtis Ray and SunCor Financial are not alone in this theory of how smart businesses should manage their starting capital. The statistics seem to tell a similar story of where it is that most businesses go wrong. The Bureau of Labor Statistics finds that around one-fifth of businesses fail in the first year of operation. But this number jumps to around 50% when businesses reach their fifth year. While there are probably numerous causes for this spike in likelihood of failure, one major reason might be that businesses often make risky choices or financial investments early in order to maximize initial profits. While this is good in the short-term, the businesses eventually run out of funds from this initial boost.
By following the advice of industry experts like Curtis Ray, businesses may stand a much higher chance of making it past this dreaded fifth year. Ray’s conception of a business’s financial future involves slow, steady gains over many years. This results in safe, compounding funds, which allow savvy managers to grow their business at a rate conducive to sustained success.
The old saying goes, “the flame that burns twice as bright burns half as long.” If financial experts like Curtis Ray are to be believed, this ancient proverb holds extraordinary true when it comes to wealth management for businesses.