A great product, high sales and excellent customer service are all essential ingredients to a successful business. All of these things are irrelevant if your business is in financial trouble. The slightest disruption can send your business to the ground. What can you do to make sure that your hard work doesn’t go unrewarded? What can you do to ensure that a financial crisis does not rock your boat, or sink it? Let’s look at the causes of these jolts, and more importantly, what we can do to fix them.
Administration and poor record keeping
Most business owners don’t have the skills to keep records or be bookkeepers. Entrepreneurs are those who have great ideas and see a market gap. They also have the ability to sell anything. They don’t get up in the morning and shout “Great, it is a VAT day today!” You must accept that you will have days like these if you want to keep your business on track. Keep track of all sales and purchases. Also, keep track of how much inventory you have.
You will quickly lose track of your location if you don’t keep these records. It won’t be easy to know:
- What you’ve spent your money on
- It’s impossible to know where your money is going
It’s impossible to know the exact location of your stock – could someone have stolen it? Who knows? This is not conducive for financial stability. What kind of records are you talking about? It’s not complicated. It’s as easy as writing a book that has one page for income and another for expenditure. It’s worth checking at least once per month to see how much you have earned (I hope!). There is a saying. It is said that “The people who keep records are also the people who break records.”
You don’t need to be concerned about your bank balance
Are you aware of your current bank balance? It is important. Because you need to know if your bank has the money you want to use when you write a cheque. You could be thrown out by your Bank Manager if you don’t. This can have a negative impact on your reputation. Your credit score will be affected and you may not be able to get financial support from your Bank or suppliers in the future. You didn’t verify your balance. This can be avoided by keeping a cash log of all the money in your account. Sign up for Internet Banking. All High Street Banks offer this service, so you don’t have to lose track of where your money is going.
Credit Management and Poor Cash
How you manage your cash flow is closely linked to keeping your Bank balance in check. This involves 3 components.
1. Do not keep too many items in your home or at work. It could be lost to fire, theft, or flood.
2. If you are doing ‘business-to-business’ sales then you may be faced with having to sell on credit. Be disciplined about chasing up any unpaid payments if you are selling on credit. It is not worth being embarrassed to ask for a check. Why wait 3 months if you’ve already agreed to 1 month of credit? You have your own debts that you must pay so chase as much as possible!
3. It is possible to be granted credit for a limited time by people who you buy from. You should stick with the credit they offer you for a month. You may receive a letter from the Solicitor if you choose to keep your bills unpaid. Do not ignore the problem or hope that the phone calls will stop.
No cost controls
You can save money by shopping around for the purchases that you need to make. Compare specifications and prices. Set a maximum amount you are willing to pay. Be open to finding a great deal.
Spending on the Wrong Thing
It can be very rewarding to own your business. It is easy to be tempted not to invest in your business but on the car, clothes, or kitchen. You have to see the whole picture, don’t ya? Even after you have established your business, you need to make sure that you only spend the money you earn in the beginning years. At this stage in your business’s life, the trappings of success might not be right for you. Cash is essential for your business’ growth. Cash is the lifeblood of your business.
Be disciplined about your spending and ask yourself, “Will this cost add to my business?” Do not act on impulse. Take the time to think through every large expense. Spending money should be considered carefully if the answer is no.
Failure to Make Time-Responsible Cuts
It is impossible to afford to fail to make the necessary cuts for your business’ survival. You must act immediately if you notice a problem. Do not wait for things to improve; they are likely to never. Don’t pretend that your product or service is performing well and it’s costing money. Be ruthless, and get rid of it. Make your decision quickly; don’t hang about. You will only make the problem worse if you don’t act quickly.
Relying on a small number of customers
A small number of customers can be a problem if everything is going well. However, if one or more customers leave or fail to pay on time, this could cause problems. A 33% drop in sales is possible if you depend on three customers. You may not be able replace him quickly enough to avoid any crisis. Your business cannot be taken hostage. Diversify your business as much as possible. Reach out to new customers. Businesses that only rely on one or two products are also vulnerable. You could be left with no sales and unsold stock due to a shift in public taste.
A Budget is not necessary
A budget is a good way to be financially disciplined. Set new goals based on the previous year’s income. You can see which areas you can reduce or eliminate altogether. With your budget in hand, you can create a plan to follow. This is a second review before you make large purchases. A budget will help you be more disciplined about your spending. Update your budget at the end of each month by adding your actual income and spending, then compare it with the actuals. This exercise will help you to be more focused on your business’s performance. This exercise can help you identify the problems and fix them.
No Contingency Plan In Place
Businesses with larger businesses should have a contingency strategy for all aspects of their business. A contingency planning is basically a plan that answers the question “What would you do if this happens …?” What’s your “if?”? What happens if your premises are lost? What happens if your computer crashes? The biggest risk for a small business is you. What happens to your business if the owner becomes ill? Many small businesses are completely dependent on their owners. You can do everything!
Who will take customers if you are too sick to work for a few months? Who will be able to get new customers? Who will handle the paperwork? Who will pay the money? These are crucial questions that you need to answer immediately. If you want to avoid financial disaster, you will need to find someone to fill in. Next, you need to create a guideline on how your business operates and outline the key processes. There is at least a plan to follow if something happens!
Don’t talk to your bank manager
When most people realize that a financial crisis is imminent, the person they most want to avoid is their Bank Manager. They will not cross the road if they see him walking along the same side as the road. The first person to contact is the Bank Manager. Bank Managers love to keep up-to-date with the latest happenings in their business. They do not like surprises. They don’t like surprises. If you suspect that there is a problem, you must talk to your bank manager immediately. You never know, your Bank Manager might surprise you and offer to help. It is possible to avoid financial problems by taking a step back and looking at what could go wrong. You can then take preventative steps to avoid financial disasters.
Worst Small Business Financing Strategy Ever
Depending on which stats you look at, around 80% of small businesses fail within the first five years of their existence. It’s not often that a business fails; it was just that there wasn’t enough time to make it successful. We are now at the bottom of the most inefficient small business financing strategy.
Here’s how it works.
A potential entrepreneur creates a business plan they believe is a guarantee to succeed. They are unable to find any type of capital so they open their business using credit cards. The goal is to have sustainable business results in 3 to 6 months. If all goes well, the debt can be retired in a year. The bank account will begin to build funds. It sounds great, right?
This thinking is in perfect alignment with all the get rich fast business opportunities available on the internet today. Some even attempt to convince you to use credit cards because it’s so great and cannot be missed. Problem is, every business can fail. Each and every one.
The vast majority of them fail.
Are you familiar with someone who has a small, successful business? Perhaps one that has been in existence for between 10 and 20 years. You might be surprised at what you find out if you ask these entrepreneurs about their start up period. Even the most successful small- and medium-sized businesses today had their ups and downs in the beginning. Sometimes, the early years were difficult and lasted several years.
This is the essence of the matter. No matter how meticulously you create a business plan or a financing strategy, the process of making a business successful and operational can be unpredictable. To increase your chances of success, you must be open to the unexpected, the unplanned, or the unfair. Unexpected events are not part of a business financing strategy. It is not a good strategy to base your business financing on high-interest credit cards, which can cause cash flow problems and damage your credit score. Here are some ways to increase your chances of success with a small business.
Invest your own cash
You will be more likely to get a start-up loan if you have some cash in your personal bank account. Lenders will approve your loan request if you have more “skin” than you do. It is important to mention the psychological motivation of losing your money and the motivation to work harder for it.
Create Contingencies in Your Cash Flow
Double your working capital requirement, no matter how high you think it should be. Minimum, increase it by 1. There are always things that can go wrong. Give yourself every chance to win and create a business finance strategy that will allow for imperfect results.
Make sure to use your credit cards wisely
Credit cards, if used correctly, can be the most cost-effective form of working capital you have. Business credit cards offer 40 days of interest-free financing. You can get working capital financing at a very low cost if you pay the full balance each month. If you carry large amounts of debt without paying them down on a monthly basis, your source of working capital will become the most expensive. You will also likely ruin your credit rating.
Make Timely Government Remittances
Small businesses are often default tax collectors. The taxes collected may end up financing the business for longer periods than originally intended. It is a bad idea to use government remittances for business financing strategies. Large budgets are available to government agencies to collect from you. They also have enough authority to cause a lot of trouble if you’re slow to pay. Your loan request will be denied if you apply for a loan to a business while you have a balance with the government tax agency.
Even if the balance has been paid, it is possible that you have damaged your relationship with the lender. A history of late government remittances could make you a bad credit risk. You can control how much and on what you spend your money early on. While this is likely to change over time, if you are able to spend wisely at the beginning, you might be able avoid costly cuts later. Although it is true that money must be spent to make money, there are still ways to be smart about spending.