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Small business owners are never guaranteed success. It’s the ones who take the time to learn business fundamentals and apply them early on who are generally most likely to succeed.
Whether you’re in the early stages of launching a startup, or already own a young small business, understanding these five business fundamental principles of business can go a long way toward helping you and your business thrive.
Key Points
• A list of important business fundamentals typically includes leadership, goals, strategy, finances and accounting, and systems and processes.
• Leadership is crucial since it inspires and motivates employees, impacting the company’s vision and success.
• Setting specific, achievable goals is essential for guiding a business toward success, while strategy involves planning and executing actions to achieve business goals.
• Understanding finances and accounting helps owners manage cash flow and increase profits.
• Systems and processes can streamline operations and improve efficiency, aiding in business growth.
What Are Business Fundamentals?
How the “fundamentals of business” are defined can vary widely. Typically, however, this phrase refers to the basic skills and concepts needed to run a business that hold true regardless of the industry or size of the organization. Getting these business basics right from the start can help lay the groundwork for a solid future.
Why Are Business Fundamentals Important?
The type of products or services a business sells often matters less than how the company is run. Applying time-tested business fundamentals when you’re starting or growing your small business can help you avoid costly mistakes, weather economic downturns, and stay one step ahead of your competitors.
However, using any of these skills and concepts isn’t a one-and-done proposition. Rather, these business foundations are elements that generally require constant effort to nurture. You won’t, for example, become an excellent leader overnight and then never have to worry about it again. Knowing when to grow your enterprise via a small business loan vs. other sources of capital requires gathering insights at every crossroad. Each of these business fundamentals requires time and effort over the long haul to master, and the target is always moving.
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The 5 Business Fundamentals
If you want to equip yourself with the skills necessary to effectively start a small business and successfully run it, consider focusing on these five key business principles.
1. Leadership
There is a difference between a manager and a leader. A manager makes sure employees are doing their jobs day to day, while a leader inspires and motivates them to give the job their all.
Positive leadership is one of the most important business basics. However, many, if not most, business owners don’t start out as excellent leaders. This is a skill that can take time to master.
There are many different types of leaders, from the autocratic leader who prescribes how staff should achieve a goal to the laissez-faire leader who lets employees find their own creative solutions.
As a rule, however, a strong leader has great communication skills and truly listens to what employees have to say. They are open to suggestions and feedback and are constantly seeking ways to improve not only the company but also morale.
2. Goals
One of the major business fundamentals you need to succeed is setting specific and achievable goals. A company without goals is like a boat adrift in the sea. Even if you’re mired in your daily responsibilities, it’s important to have both short-term and long-term goals for the company.
A short-term goal might be to expand your sales territory and increase sales by 10%. A long-term goal might be to open a second location for your business.
Understand that sometimes goals change, and that’s okay. It’s a good idea to review company goals every quarter and adjust them as needed. Even if you have a three-year business plan that you think is perfect, economic and other forces are constantly changing and must be taken into account.
3. Strategy
Goals state what you want to accomplish; strategy is your plan for achieving them.
If you want to expand your business with a second location, for example, you would need the cash to do so. Obtaining it might start with applying for a business loan that gets you the capital you need for the investment, paying for retail space, and hiring staff for the second location.
It can be a good idea to make a timeline for each goal, as well as a deadline for each action item required to meet the objective.
Many of your overarching business goals may already be outlined in your business plan. However, it’s a good idea to periodically review and update your plan to make sure it reflects where your company currently is and where you want it to go.
4. Finances and Accounting
Even if you aren’t actively managing the company’s finances, it’s wise to have a good understanding of small business accounting. Regularly reviewing business financial statements like the balance sheet and profit and loss statement can help you understand how your money is flowing in and out of the business. You can assess expenses and cut where it’s possible to increase profits.
Keeping an eye on your finances also allows you to forecast when you might need an injection of capital. There are a variety of business loans available, but you don’t want to wait until your cash has run dry to apply for one. It can also be a good idea to keep an eye on credit scores (personal and business) and small business loan interest rates to help make sure you get financing with favorable rates and terms.
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5. Systems and Processes
For a business to run smoothly and efficiently, it needs the right systems and processes in place.
• “Systems” refers to the tools and software programs your business uses to stay organized. That might include your accounting software, customer relationship management software, and email marketing program. Each of these has a specific purpose and can help drive sales, keep your finances organized, or help you better serve customers.
• “Processes” means the tasks or actions taken to achieve an objective. You and your staff likely already have processes in place. It’s a good idea to document each one. That way, any time you hire someone new, all they have to do is learn how to follow the process. There’s no need to reinvent the wheel.
For example, your marketing director may have a step-by-step process for scheduling two weeks’ worth of social media content. If they document this process, including what to post and where to find images, they can delegate this task to an assistant who can follow the process document. This reduces the risk of errors and streamlines the training process.
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Additional Business Foundations to Consider
The fundamentals we’ve already discussed are the ones you may be most likely to see as well as ones you’ll likely want to prioritize as you build your business. But they’re not the only ones you should be aware of. Here are a few more important business fundamentals.
Marketing and Customer Acquisition
Making sure that people are aware of your business and that they patronize it are important related tasks. Marketing focuses on creating broad brand awareness with positive associations; customer acquisition concentrates on converting interest into action by encouraging potential consumers to purchase your product or service.
Both marketing and customer acquisition are key to business growth, and both will also need to be planned carefully on an ongoing basis that allows you to tweak your strategy as your company and your customers evolve.
Operations and Team Building
It’s also crucial to look at your business’s operations, including workflows, tools and materials, and resource allocations, regularly. Building a strong and effective operational structure is a major part of getting your business going, but reviewing and revising that structure is equally important to make sure that your business doesn’t outgrow your resources, your systems, or the team you have available.
Your team and its morale are an integral part of your operations. Ensuring that your operations are working takes more than just a sound structure, it requires that team members feel engaged and valued. Listening to feedback about operating procedures and providing growth opportunities and access to upskilling can help here, as can team activities that support cooperative interaction and problem solving. Giving your team the chance to provide input and grow together so that they can take on new roles not only builds loyalty, it helps ensure that you will have the workers you need to fill senior positions as your company develops.
Applying the Business Fundamentals
Feeling daunted by all these business fundamentals? The good news is that you don’t have to master them all at once. In fact, it’s often better to focus on excelling at one business fundamental at a time. Just keep in mind: You’ll never be done working on these business fundamentals.
Consider yourself a lifelong student of entrepreneurship!
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The Takeaway
The fundamentals of business can mean different things to different business leaders. However, the basic tenet is that every business requires a strong foundation. By understanding and applying basic business principles — like good leadership, goal setting, strategy, and systems and processes — early on, you can build and grow your company with confidence.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
FAQ
What are the fundamentals of business?
Fundamentals of business are key skills and concepts a business needs to be successful over the long term. Lists of them often include leadership, goals, strategy, finances, and systems and processes.
What is considered the first business fundamental?
Leadership is often considered the first business fundamental because it impacts everyone in a company and can guide the enterprise’s vision from startup through expansion.
What is a core business principle?
Many people think of core business principles as having five key components. Core business principles include leadership, goals, strategy, finances, and systems and processes.
How do business fundamentals differ from a business plan?
Business fundamentals are overarching skills and concepts that can be applied in all businesses to help them succeed. A business plan is a detailed document that specifies how a business will operate to make money.
What is a business model and why does it matter?
A business model is the plan a business has for how to generate profit by providing customers with specific goods and services. It includes information like what products or services will be offered, who the intended customers are, anticipated expenses, and whether the sales method will be retail, subscription, freemium, or something else. A strong business model can help a company recruit talent, inspire its workers, and attract investors.
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