Lending Library

Even if you have an accountant on staff, there are still some financial documents you should be familiar with as a small business owner: income statements, balance sheets, and cash flow statements. Each gives insight to a business’s financial health, although income statements and balance sheets display different information, which is used to create a cash flow statement. Plus, they’re all important to potential lenders and investors.

Let’s start at the end: cash flow statements.

While an income statement shows how your business earned money across time, your balance sheet provides a snapshot of your company’s financial health in the present. Lenders may want to evaluate both along with the cash flow statement you create from them as part of their funding decision.

What’s a Cash Flow Statement?

A cash flow statement displays how much actual cash is moving in and out of your company’s accounts. It is built based on the information recorded on your income statement and your balance sheet, which is why it’s important to understand those financial documents, too. Lenders will see a cash flow statement as an indicator of your business’s financial status.

What’s an Income Statement?

Before you can build a cash flow statement, you’ll need an income statement. As you might expect, an income statement shows a business’s revenues. It also includes costs of goods sold (COGS) and expenses over a period of time. This document is also called a profit and loss (P&L) statement. Income statements are created on a regular basis, often quarterly and annually. The income statement shows whether the business has turned a profit or operated at a loss over a specific period of time.

“This report tells you how much money a business makes, and a lot more,” says Eric Rosenberg of Due. “A well-run bookkeeping operation includes details for where you spend and where your money comes from. For example, I can look at my P&L for a quick summary of how much I make from writing, how much I make from advertising, how much I spend on business travel, and how much I pay for computer and internet costs. Each business would have different accounts for its own income and spending categories.”

Over the long run, you can compare past income statements to your current ones to see how your business is running across its life. Lenders also value income statements because they reveal whether your business is profitable over time—and therefore whether they should continue to fund it.

Income Statement Examples

You can find income statements online for publicly traded companies, like Apple.

Imagine your company XYZ has earned $327,000 in revenue during the fiscal quarter and the COGS, meaning the direct costs related to each item sold, is $190,000—your gross profit is $137,000. Say you have $120,000 in expenses, like rent, wages, and marketing. Your operating profit for the quarter is $17,000.

What’s a Balance Sheet?

Your balance sheet, on the other hand, shows your assets, liabilities, and shareholders’ equity (which may also be called owners’ equity). The amount of your assets should always equal (or balance to) your liabilities and shareholders’ equity added together.

Examples of assets include cash in your bank account, property, and vehicles. Liabilities are debts, like loan repayments. Shareholders’ equity is calculated from the other 2 factors: it’s how much the company would be worth if all assets were sold and liabilities were paid down.

While an income statement shows how your business earned money across time, your balance sheet provides a snapshot of your company’s financial health in the present. For this reason, lenders also evaluate balance sheets as part of their funding decisions to analyze the strength of your business. And over time, comparing past balance sheets with present-day ones can also function as a diagnostic tool for your business’s success.

“Each section of the balance sheet can provide you with important financial information you can use to improve your small business,” writes Elizabeth Macauley in The Hartford. “Be sure to consider how each section intersects, interacts, and connects as well. Considering the whole picture can give you better insights to help you make the correct future financial decisions.”

Balance Sheet Examples

Publicly traded companies, like Walmart, also publish their balance sheets online.  

Say your company XYZ has $800,000 in assets and $436,000 in liabilities. The shareholders’ equity is $364,000. On this balance sheet, both the assets side and the liabilities plus shareholders’ equity side balance.

Is an Income Statement Part of a Balance Sheet?

Income statements and balance sheets are separate documents, but both are often viewed together and generated at the same time (e.g., every quarter). Each document shows different but related financial information. In a broad sense, income statements show how your company has performed in the past, while a balance sheet provides a valuation of your company in the present moment.

What Comes First, an Income Statement or Balance Sheet?

When preparing financial documents, like for a lender, your income statement should be placed before your balance sheet. Generally, a lender will be interested first in your company’s profitability, which is displayed on your income statement. The other data is still important, as it will speak to whether the company is a good investment or not.

Should an Income Statement and Balance Sheet Match?

While the information on your income statements and balance sheets will be different, it should all reflect your business’s financial situation as accurately as possible. The bottom line of your income statement and your balance sheet equation will differ because they utilize different data.

How to Track Your Financial Statements 

If you’re not already using a bookkeeping tool to keep your business’s financial records, consider adding one like Sunrise—which offers tools and services that simplify financial report generation and organization (you can also use Sunrise to invoice customers, manage expenses, and process certain transactions). Plus, Sunrise offers everything from free DIY bookkeeping tools to personal bookkeeping services. 

The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice, and all information, content, and materials contained within are for general-information purposes only. Readers of this post should contact their attorney, business advisor, or tax advisor to obtain advice with respect to any particular matter.

Considering small business financing? Whether you're looking for a small business loan, a business line of credit, equity financing, or another form of financing, the process is smoother when you have your ducks in a row before you start.

Why are you applying for small business financing?

Before beginning your application, work through the following questions:

• Why do you need financing?

  There are a multiple reasons to apply for small business financing, and knowing clearly your intent with the funds  can help a finance manager match you to the right product. Are you seeking financing to make repairs, to acquire much-needed equipment, to help your business bridge the gap between billing and invoice? Be sure you know how you'll use the money or credit you're requesting. While you may be able to manage with existing cash flow, a boost in funds could pay for your expansion or act as a just-in-case cushion. Remember, it's always better to apply for financing before you need it, and the terms you qualify for may also be more appealing if you apply while cashflow is strong. 

• How will the capital be used?   

  Lenders will want to know specifics. Are you investing in new equipment? Hiring more employees? Expanding or upgrading your office space? Don’t leave anything out. Specify what the funds will be used for—if you're applying for an equipment loan, state the type of equipment, the dollar amount, even the model and the brand, if you have that information. You’ll also want to articulate why you need these improvements and how will this investments will contribute to the growth of  your business. 

• When do you want/need the funds?

  Don’t wait for a crisis to apply for  small business financing of any kind. Look ahead and plan for growth and protection from potential crises.

• How much will you need?

  This is where you’ll really need to get into the details. Predict what you'll spend by doing research and getting quotes whenever possible. If you’re looking for funding to expand, it may be difficult to know if your financial forecasting is accurate. Take a big-picture view of everything you believe you'll need, then use the financial records you already have and apply this information to your future plans to give you a better idea of what you'll need to borrow.

• What's your ideal repayment schedule?

  There should be two parts to your answer: What is your preferred repayment plan? What happens if Repayment Plan A falls through? What if your sales are worse than projected—what’s your Plan B?

• How healthy is your personal/business credit?

  Your personal credit is just as important as your small businesses’s credit—especially if you’re a startup. If your business is young, lenders will want to see your personal credit as well. And, depending on the lender and the type/amount of loan or financing you're looking for, lenders will likely want to see your personal credit even if you’ve been in business for years. Lenders want to get an overall picture of your credit health. While your personal credit score may seem irrelevant, lenders view it as a great way to determine how you'll run your business

• What are the qualifications/capabilities of your management team?

  You've assembled an amazing team. Make sure you know their qualifications—this collective "resume" can be impressive to lenders.

Your 6-Item Small Business Financing Checklist

Next, it's time to gather the documents you'll need. Having these documents with you when you apply for small business financing can simplify—and speed up—the process.

1. Income Tax Returns from Previous Three Years.

Lenders will definitely want to see your tax returns—business and personal. BTW, the more profitable your small business appears on your tax returns, the easier it can be to obtain small business financing. So if you're planning in advance for a loan or other financing down the line, be sure you consider deductions carefully, particularly if they make your business seem not-so-profitable.

2. Financial Statements and Projected Financial Statements.

Balance sheet, assets, liabilities and net worth—be sure you have your financial statements available. Ensure they're accurate. Lenders will do a numbers crunch, and if you’ve manipulated anything in any way, discrepancies will raise a red flag. Tell it straight. Do your due diligence with the projected financial statements as well. 

3. Personal and Business Bank Statements.

Most lenders want to see both personal and business bank statements. Be prepared to explain any periods where you were low on cash or went negative.

4. Business License and Registration.

Hate paper records? Your business license and registration are probably online if you haven’t kept a physical copy handy.

5. Articles of Incorporation.

Are you incorporated? Have an LLC? Grab those legal documents! 

6. Your Business Plan.

Make sure you write and edit your business plan. Find other experts and professionals to read through it and find holes before lenders find them. You want to make sure you’ve covered everything that lenders could possibly ask. 

Once you've collected everything, it's time to apply. Get started here and see all of your small business loan options in one place, 

Behind every business is the story of an owner who wanted to change something. Some of these stories are personal. Some are inspiring. And others are brand stories inspired by an unfortunate event or tragedy, which is the case in each of the following cases. 

SIDS Leads to a Product for Prevention

One of the best-known stories of a company created in tragedy’s wake is Halo, which specializes in safe bedding for newborns. In 1991, Bill Schmid lost his firstborn to sudden infant death syndrome (SIDS), otherwise known as crib death. He wanted to prevent any other parent from experiencing the same tragedy. This led to the development of the SleepSack—the very first wearable blanket. 

Today, the SleepSack is available in more than 1,700 hospitals nationwide. Their educational safe-sleep materials are distributed to over 10,000 new parents annually, and the company’s products are also created even for babies that fall into smaller sizes—like those spending the first weeks of their lives in the NICU. 

Schmid and Halo continue to develop products that help new parents protect their newborns and guide them to sleep safely. The company thrives because it was built on the values of protecting kids and preventing tragedies. Since 2010, they have donated more than $9 million to hospitals to support healthy births.    

Cancer Remission Leads to a Fresh Start

Sarah Fonteyne is the founder of Halcyon Naturals, a company focused on self-care. Before starting her business, said Fonteyne when she shared its brand story with The Real Life, Fonteyne worked in music as a tour manager and promoter—careers not known for a low-key lifestyle. The idea to create scents and candles without harmful toxins emerged from Fonteyne’s own recovery from cancer and subsequent remission. 

Fonteyne hopes her candles and other scented products will help others live the way she does now: mindfully and in the moment. Halcyon Naturals’ motto—to “create freedom through the power of aromachology”—mirrors this goal. Still, she cautions against confusing her brand story with her personal experience: “I have always been an entrepreneur,” Fonteyne previously told the Enterprise League. “Cancer was a moment in my life, but it in no way defines who I am as a person or…an entrepreneur.” 

Business Closing Leads to Another Opening

In December 2020, NPR’s Planet Money interviewed Roberto Ortiz, a veteran software designer who had just moved to San Francisco to launch a business that connected restaurants to wholesale food providers. The idea was sound—until COVID hit and shut down restaurants across the country.  

Ortiz and his partners debated for a while how they would make their business work. They spent so much time on Zoom calls doing so, in fact, that they decided to start their own video conferencing experience. They wanted to make the “Ritz Carlton of virtual events,” targeting business professionals who needed better features than Zoom or Microsoft Teams could offer. They called it Welcome. 

As of the end of 2020, their business had 30 employees and has raised $12 million. The pandemic brought many entrepreneurs down, but some saw inspiring ideas that made surviving this past year easier. 

Moving Forward—Even after a Hurricane

For some entrepreneurs, a tragedy doesn’t inspire new business ideas but rather lights a fire to move their existing company forward. Lorenzo Marquez—founder of Marqet Group, a full-service marketing agency—had grown his team to 10 employees in just 5 months. His business was growing, and he was feeling confident. 

Then Hurricane Harvey devastated Houston. Marquez and his family lost their home. At the same time, the Marqet Group’s employees were scattered across the city (and country, as some evacuated) and tried to pick up the pieces of their lives.   

However, Marquez built back. His office building was flooded, but he fought his fears and kept moving forward. Little by little, he regrew his business—and today, it’s stronger than ever. 

"Looking back on that horrific experience, I can honestly say that the most beneficial thing that I did for both my family and business was to develop the courage to take action despite all the fear that was attacking me,” Marquez tells Entrepreneur. 

The Value of Your Brand’s Origin Story

A brand's origin story is an important part of connecting with an audience. Notes marketer Neil Patel, “Before you sell anything, you need to connect, and not just with a handshake or sending out one email. You need to emotionally connect with the people you want to be your customers now, and for the rest of their lives.” One of the best ways to do this is by peeling back to curtain so the audience sees what drove you to start your business, the hurdles you overcame, and what inspired you.

However, it’s worth mentioning that the stories retold here are not intended as a roadmap to success—they were selected to illustrate how unforeseen circumstances can sometimes become the catalyst to making a positive difference in a life, outlook, or world, too. Entrepreneurship is merely one way to turn a tragedy into a reason to give your own life new meaning or even to help others.

The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice. All information, content, and materials available in this post are for general informational purposes only. Readers of this post should contact their attorney, business advisor, or tax advisor to obtain advice with respect to any particular matter.

For small business owners, bankruptcy can feel like an obscenity to say out loud. When you read about big corporations going bankrupt in the news or hear entrepreneur friends share that their small businesses filed for bankruptcy, it sounds like they’ve reached a tragic end.

The truth is that bankruptcy doesn’t mean you’ll never work again—it doesn’t even mean that your business has to shutter for good. While the bankruptcy process for small businesses can be traumatic, expensive, and financially damaging, there are ways to mitigate the stress of bankruptcy as well as methods to protect your business and your assets during the process.

Knowing the different options available for small businesses considering bankruptcy is the first step. Before you contact a lawyer or your creditors, think about which type of bankruptcy might fit your situation best.  

What Is Bankruptcy?

Bankruptcy is a legal proceeding decided in federal court involving an individual or company that is unable to repay outstanding debts. Typically, the process begins with a filing on behalf of the debtors, although occasionally debtors can begin the process with the court. During the process, the court takes into account the debtor’s assets. Depending on the type of bankruptcy, the types of debt involved, and the business’s structure, the court may decide that the assets are used to repay debts.

It’s common knowledge among entrepreneurs that most small businesses fail: Bureau of Labor data shows that about 50% of small businesses close within 5 years of opening. However, not every business that closes files for bankruptcy. Most companies that consider bankruptcy are having issues with repaying debt.

Still, small business bankruptcies happen all the time. In the first quarter of 2021, a study found that there were 6,289 commercial bankruptcies in the United States.  

You often hear the different types of bankruptcies referred to as “chapters”—this refers to their chapter in the US Bankruptcy Code. Another recent survey of small businesses found that of respondents that filed for bankruptcy, 51% filed for Chapter 7, 22% filed for Chapter 11, and 27% filed for Chapter 13. We’ll talk more about these chapter types below.

When Should a Business File for Bankruptcy?

Instead of thinking about how successful—or not—your business is, when considering bankruptcies, think most about your debts and your ability to repay them.

“The truth is, if your business is consistently unable to keep up with your debts and expenses, it’s already bankrupt—or on a very short trajectory towards it,” explains Meredith Wood in AllBusiness. “Filing for bankruptcy protection is meant to help you get out of this untenable situation and keep many of your personal assets. You may be able to keep your business open while you pay off debt by reorganizing, consolidating, and/or negotiating terms.”

Filing for bankruptcy can lead to the closure of your business, but it can also be used to save your company by allowing you to renegotiate your debt situation. Either way, it doesn’t foreclose your ability to start another business in the future.

“While filing for bankruptcy does take recovery time, it isn’t the all-time credit-wrecker you may think,” Wood continues. “Typically, after 10 years, it is removed from your credit history, and you’ll likely be able to get financing several years before that.”

If you feel like your debt and business expenses are overwhelming your small business’s ability to continue, you should think about bankruptcy. The next step is to determine what type of bankruptcy represents the best way to move forward.  

The 3 Types of Small Business Bankruptcy

The 3 main types of bankruptcies utilized by small businesses are Chapter 7, Chapter 11, and Chapter 13. There are even more forms of bankruptcies for individuals, companies, and cities, but these 3 types are the main commercial options available to you.

The type of bankruptcy you pursue will mostly depend on how your business is structured and how you plan to move forward after filing bankruptcy.

Importantly, any bankruptcy filing places a temporary stay on your creditors and puts your repayments on hold while the court considers your situation.

Chapter 7: Liquidation

In Chapter 7 bankruptcy, a company is closed and its assets are liquidated in order to pay off its debts. In the popular imagination, this situation is likely the one most people think of when they think about bankruptcy. If you believe your small business has no viable future, Chapter 7 might be your best option. Chapter 7 might also make sense if your business doesn’t have a lot of assets to begin with.

Sole proprietorships file a personal Chapter 7, which takes into account both personal and business debts.

When Chapter 7 proceedings start, a “means test” is conducted on the applicant’s income. If the income is over a predetermined level, the application is denied. Next, the court appoints a trustee to take over the company’s assets, liquidate them, and distribute them amongst the creditors.

If it is a sole proprietorship case, a discharge is issued after the creditors are paid, meaning the business owner is no longer obliged to pay any more of the debt in question.  

Chapter 11: Reorganization

If you think your business can continue after bankruptcy, filing for Chapter 11 might represent your best choice. In this type of bankruptcy, the debtor plans to reorganize so that it can repay its debt while continuing operations. Working with a trustee and your creditors, you’ll have to devise an expansive plan that shows how you can repay your debt. Your plan must ultimately be approved by your creditors.

Chapter 11 is commonly talked about in the financial press, but it can be a hard process to navigate for small businesses.

“While Chapter 11 is designed to give distressed but viable businesses a second chance, it has a very poor track record with small and medium-sized companies,” a report from the Brookings Institute notes. “The costs of bankruptcy for small and medium-sized businesses are substantial—often 30% of the value of the business—and two-thirds are liquidated rather than reorganizing.”

There are good reasons to suspect that a Chapter 11 bankruptcy might work best for you if you don’t want to shut down. However, going this route can be expensive and lengthy—many proceedings take a year or longer to complete. It’s worth it to contact a qualified bankruptcy attorney if you want to explore Chapter 11.

Chapter 7 vs. Chapter 11

As complex as it is, you might want to research Chapter 11 if you feel like your business can continue with restructuring.

“The only reason you need to use Chapter 11 at all is to deal with recalcitrant creditors,” bankruptcy lawyer Bob Keach told the New York Times. “If creditors won’t negotiate with you, bankruptcy allows you to cram down a plan of restructuring.”

Remember, filing for Chapter 7 doesn’t mean you can never open another business, although financing might be more difficult to find at first.

Chapter 13: Reorganization for Sole Proprietors

If you’re a sole proprietor with a high income, you can file Chapter 13 bankruptcy. This allows you to keep your assets and property if you agree to a new repayment plan with your creditors. These plans usually last 3 to 5 years.

Does Filing for Bankruptcy Mean Going out of Business?

If you file for Chapter 7 bankruptcy, your business is closed and its assets are liquidated. If you file for Chapter 11, you’ll be allowed to keep your business open under a new plan with your creditors.

Will Business Bankruptcy Affect Me Personally?

A business bankruptcy could impact the business owner if your personal assets were used as collateral for your debts. Importantly, though, you will not go to jail for not paying a business loan.

“It depends on what personal guarantees you made,” Amy Haimerl writes in the New York Times. “Most small business owners put up their home or some other asset as collateral for start-up loans…If you used your house as collateral, it’s possible you would be forced to sell it as part of a Chapter 7 settlement. Under Chapter 11, you may have more luck.”

If you’re a sole proprietor and you file for Chapter 7 but fail the means test, you can file for Chapter 13. However, your repayment plan will be based on your income.

One of the big differences between personal and business bankruptcy is the means test. Individuals have to participate in a means test to determine if they are eligible for a Chapter 7 or a Chapter 13, while businesses do not have to undergo this for a Chapter 11 filing.

If your business is structured as a limited liability company (LLC) or a corporation, then your personal assets should be protected unless you used them to secure a loan.

If you file for bankruptcy as a sole proprietor, your personal credit score will lower significantly. Chapter 7 and Chapter 11 bankruptcies stay on your credit report for up to 10 years, while Chapter 13 bankruptcies stay on your credit report for up to 7 years.

If your business is an LLC or a corporation, its bankruptcy filing shouldn’t impact your personal credit score. However, if you personally guaranteed one of the company’s loans and you fail to repay, your credit score could be dinged. 

If you pay attention at all to your financial situation, you’re probably aware of your credit score, which is assigned to you by nationwide credit bureaus and impacted by your credit activity. Did you know another agency also pays attention to your banking activity and assigns you a score?

ChexSystems garners information about your banking activity—especially if it is suboptimal—from major banks across the country, much like how credit bureaus take in information from lenders. You can run into trouble if you are blacklisted by ChexSystems—you might not even be able to open a bank account for years.

Here are some things to know if you receive bad marks from ChexSystems.

What Is ChexSystems?

ChexSystems is an agency that tracks your banking behavior and provides this data to banks. According to recent estimates, some 80% of American banks use ChexSystems or a similar agency. Founded in 1971, ChexSystems is operated by FIS, formerly known as Fidelity National Information Services. Through the ChexSystems subsidiary, FIS maintains records on millions of Americans.

ChexSystems is similar to the 3 credit bureaus that assign you credit scores, but it looks at your banking risk instead of your creditworthiness. ChexSystems isn’t discussed as much as the credit bureaus—you might never hear of the agency unless you’re blacklisted by it.

Also like your credit score, your ChexSystems report follows you around. Any bank that utilizes the agency has access to your report, which can make it difficult to even open a checking account if you run afoul of ChexSystems.

Why Were You Blacklisted by ChexSystems?

You can be blacklisted by ChexSystems for a variety of reasons, but they all relate to your record of handling, or mishandling, a bank account. Commonly, people are blacklisted by ChexSystems for writing bad checks, failing to pay overdraft fees, or rating suspicion of fraudulent behavior. Generally, there needs to be a pattern of behavior for ChexSystems to blacklist you—you aren’t going to be on their radar if you overdraft once. But if your bank closes your account for bad behavior, ChexSystems will likely find out, and it will severely impact your record.

Once blacklisted by ChexSystems, it becomes very difficult to be approved for a traditional checking or savings account from most banks.

Bad records typically stay on your ChexSystems report for 5 years. However, there are some actions you can take to repair your situation.

How to Repair Your ChexSystems Report

If you discover you’ve been blacklisted by ChexSystems, you can take some steps to repair your report and get back into the banking system. These steps are especially useful if you believe that you’ve been the victim of identity theft or some sort of error was made. If you know your banking record is spotty, you’ll have fewer options to dispute your report—you might need to seek out bank account alternatives or wait until the records fall off in 5 years.

To repair your ChexSystems report, follow these steps:

1. Obtain your report from ChexSystems. You can obtain a free copy of your report online, call them, or contact them through the mail. By law, ChexSystems has to give you a free report every 12 months.
2. If you find errors on your ChexSystems report, dispute them with the agency. It is best if you have supporting documentation, like bank statements, but you can dispute errors without them. Through their process, ChexSystems will contact the banks that made the errors, but you might be able to speed the process along by contacting the erroneous bank yourself and alerting them to the situation.
3. If your ChexSystems report is bad but there aren’t any errors, you can improve it by paying down debts and fees reported by banks. Once you repay a debt, ask the bank or other creditor to update your ChexSystems report.
4. If all else fails, you can wait 5 years for your report to clear—and keep requesting ChexSystems reports every year to stay current. If you can’t go unbanked for that long, there are some alternatives out there.

Opening Bank Accounts While Blacklisted by ChexSystems

Some banks have so-called “second chance” checking accounts for people with bad ChexSystem reports.

“If your name ends up on the list of people with bad banking histories, you’re not locked out of the banking system forever,” writes Ben Gran for Forbes. “Be ready to review your ChexSystems report and file a dispute if you find any inaccurate information. And consider applying for a second chance checking account to rebuild your reputation as a responsible bank customer.”

These types of accounts usually have lower limits and fewer features. Some credit unions might not use ChexSystems, so you might have luck with your local credit union—or else you can apply for prepaid debit cards. 

Pop quiz: What do Twitter’s active users, the ratio of US households with a microwave, and streams for the song “Despacito” all have in common? 

The answer is non-linear growth. When they exploded in popularity, their metrics didn’t head in a straight upward line—the growth was exponential. 

While we might think of these events as quick spikes that should look like straight lines moving upward, the real world tends to work in curves. A pattern we see over and over again in business is essential to understand for your business planning. It’s known as the s-curve. 

What Is the S-Curve?

A company often grows slowly, then all at once. 

The s-curve is an exponential phenomenon in which your growth, charted chronologically, achieves cumulative results. After a burst of exponential growth, you then taper to a “new normal” at a higher plateau. The result is a chart that looks vaguely like an “s.” In math, you might call it a logistic function, which looks like this:

Source: “Building S-Curves for Projects in Excel Using Functions on Dates and Expected Completion Percentages,” Superuser.com.

Why is this important? Because an s-curve is a more accurate representation of real-world growth. As the Harvard Business Review notes, “There are time-delayed and time-dependent relationships in which huge effort may yield little in the near-term or in which high output today may be the result of actions taken a long time ago. The s-curve decodes these systems…”

In simpler words, by plotting an s-curve, you can form a more accurate projection of your business. This method lets you set more realistic milestones along the way. And these milestones may guide you to greater growth—even if it seems your business is hardly moving in the initial stages.

Why Use an S-Curve?

According to HBR, Facebook was a prime example of s-curve growth in action. It took the company about 4 years to reach a market penetration of 10%. Once it hit a certain threshold of users, “hypergrowth” took off. It doubled its total users within less than 2 years, eventually reaching maturation in the billions.

With an s-curve, these results made sense. Investors could set their watches by it, and Facebook could determine milestones accordingly. If they had plotted a strictly linear approach to growth? Their results might have utterly baffled them.

If you’re generating a business plan, the simplest reason to use an s-curve is that it’s a more accurate picture of how real growth works—as long as you know how to use it.

How to Incorporate the S-Curve Into Your Business Plan 

• Learn the key milestones along the way. The start, for example, is the point of the lowest momentum. Think of this as rolling a snowball down the hill—it takes a lot of snow packing and pushing before it rolls on its own momentum. At the points of growth and scale, the exponential growth begins to feel like it’s taking on a life of its own. By the time you’ve identified your business as being in a position of growth, it’s already time to plan for scaling. Eventually, plan on maturity—more on that later.
• Plot your key milestones along an s-curve. If you expect to grow 10% every year, that growth accumulates. 10% growth in 2022 won’t be the same number as 10% in 2021. This applies to every aspect of your growth: total users, total employees, and more. You can only create accurate milestones for growth if you anticipate the s-curve and build it into your projections. Doing so will help you to avoid being surprised when the cumulative returns catch up with you.
• Prepare for success. Most people don’t have to be told to prepare for failure—they’re well aware of what happens if a business fails to take off. But what if you hit a threshold that begins to lift your company in an s-curve? You don’t want it to feel like—for lack of a better term—a curveball. Using the s-curve helps you to understand when success is kicking into high gear, giving you ample time to plan for new employees, new systems, and scaling.
• Avoid overheating. This isn’t a “j-curve.” Even the world’s largest companies don’t grow to infinity: the s-curve eventually settles at the point of maturity. Avoid overheating by understanding your market and projections for market share and observing your results. This is a key insight in the s-curve that will help you set realistic milestones before you set new plans for growth.

But if you plan accordingly, you can be another example of the adage that “overnight” successes take time. They’re businesses that put in their hours, projected the right way, and stuck to a realistic plan for growth.

Social and emotional learning (SEL) is finally getting the attention it needs. An essential skill in children and adults, recent events—the pandemic, racial unrest, and increased screen time—have pushed it to the forefront for educators, parents, and even employers.

The Collaborative for Academic, Social, and Emotional Learning (CASEL) says, “SEL is the process through which all young people and adults acquire and apply the knowledge, skills, and attitudes to develop healthy identities, manage emotions and achieve personal and collective goals, feel and show empathy for others, establish and maintain supportive relationships, and make responsible and caring decisions.”

And it’s definitely a growth market projected to increase from $1.2 billion in 2019 to $3.7 billion by 2024. Any industry that’ll more than double in size is an opportunity for entrepreneurs.

Let’s take a look at what’s driving the growth of the SEL market and what that means for small business possibilities in the industry.

Why Is SEL Important?

SEL skills, similar to math or reading skills, don’t just happen. They need to be taught, modeled, and practiced regularly for both children and adults.

SEL core competencies include:

• Self-awareness
• Self-management
• Social awareness
• Relationship skills
• Responsible decision-making

Source: “CASEL’s SEL Framework,” CASEL.

Looking at those competencies, it seems like we might have all benefited from SEL training before the pandemic-related lockdowns.

That said, there is a need to teach or boost those skills as children transition back into physical or hybrid school models. Distance learning was a survival mode for parents, students, and teachers. Thus, SEL skills were among the skill sets that took a hit.

Kids need to be taught or reminded how to build relationships and relate to other people in person as there is no more video-off option. There aren't firm guidelines on what constitutes "too much" screen time for children's mental health. But it must impact them—after all, adults routinely suffer from Zoom fatigue. It’s time to help kids reset their brains for in-person and potentially maskless interactions.

SEL skills also set the foundation for additional learning. As Deb Meyer, a professor of education at Elmhurst University, says, “Academic goals cannot be fully achieved without social emotional knowledge and skills.”

That’s critical, given that many students are believed to have a learning deficit after a year or more of virtual learning. According to a Horace Mann Educators Corporation survey, respondents believe 85% of their students will have at least 1 month or more of academic progress to regain.

Source: “Closing the Learning Gap,” Horace Mann.

Who Needs Ongoing SEL Training?

The short answer to who could benefit from SEL training? Everyone.

This year wasn’t typical, so both adults and children could benefit from refresher courses on using SEL skills in day-to-day life. Like any other skill—CPR, martial arts, communication—SEL skills should be periodically reassessed to ensure bad habits haven’t replaced good intentions.

Let’s review children’s needs first. SEL programs may not have been strong in school systems before the pandemic. Still, virtual learning, as mentioned above, definitely left a significant gap in that training.

As kids return to school, they need coaching and supervision to learn and practice their SEL skills. As Ms. Meyers says, “When left to their choices, students do not always benefit from partner or group work because they do not know how to interact effectively.” In other words, we can’t expect them to magically demonstrate the same level of SEL competencies that they may have had a year ago.

Similarly, EducationWeek advocated that SEL skills need to be emphasized as “Children can’t process and retain new information if their brains are overwhelmed with anxiety.” Returning to school is a welcome change for many children, but it's a transition that will be stressful, even if it's joyful. There’ll be similarities to remote employees who have to return to the office. Suddenly, there’s commute time, mandated lunchtimes, and no dog to pet when you need a break.

Adults could also benefit from routine SEL training. Employers value workers with solid SEL skills. Those competencies permit employees to demonstrate the “soft skills” needed in the business world. As we all recover from various pandemic-related griefs, employers would do well to include SEL training as part of their workplace education offerings.

Business Opportunities in the SEL Market

Given the tremendous importance of SEL skills and the market's projected growth, plenty of business opportunities in this area target educators, families, or communities.

Business opportunities include:

• Join the ranks of e-learning businesses by creating content or administering e-learning that is focused on SEL training.
• Create an app. Some popular apps include SuperBetter and Calm, but there’s always room for another app on the market.
• Provide tutoring services focused on building SEL skills.
• If you have knowledge in the AI field, invent new ways to use AI in SEL learning.
• Build lesson plans or learning curriculums for teachers.
• Offer SEL-focused community services, including after-school programs or family workshops.
• Provide SEL-related employee training to other businesses. Perhaps it could support a business’s mental health coverage benefit to promote positive mental health.
• Start a consulting business to help schools or businesses evaluate SEL offerings and program effectiveness.

Tips for an SEL-related Business

Fundamentally, starting an education-related business includes the same steps as any other industry—know your customers, perform a SWOT analysis, create a business plan, and find and secure funding. But you’ll also have to navigate some education-specific items such as figuring out school calendars and adhering to student-related policies (e.g., FERPA).

As you pitch your business idea, remember to use your own SEL skills, including relationship-building and social awareness. The pandemic is fueling the growth of the SEL market. Speak from the heart about how your product or service can help—you don't want to be viewed as taking advantage of a bad situation.

If you have a unique idea and are ready to launch your new business, a startup business loan can give you the capital you need. But don't forget that there may also be opportunities to buy a franchise or an existing small business that already has a foothold in the SEL market. 

Whichever path you choose, know that you are providing a solution that could have a positive long-term impact on your customer’s lives.