One of the major aspects of any business is the financial stability. While cash flow is very important, it is even more important that you are in control of your finances. You should always have a backup plan as far as your financial stability is concerned.
Financial challenges are some of the most painful ones entrepreneurs have to deal with. However, making a list of financial challenges and staying close to them can help a small business survive even in times of economic instability.
1. Lack of sufficient working capital
Working capital is the life blood of any business and it is the most important responsibility of any entrepreneur to have at least 6 months expenses as working capital which gives him enough breathing space to focus on acquiring new customers and building products. The most relevant way to avoid this by figuring out a way to cut your costs by 20% and put that aside to build up working capital. If you’re a start-up that is yet to make profits, make sure you are adequately financed.
2. Sales are good but profits are low
This is another major setback that most of the businesses face at some point or the other. Generally, such a situation indicates over-spending or hidden costs eating away at your bottom line — your expenses could be out of control. To avoid such a situation proactively create a purchasing policy and system to ensure that you are buying the right materials at competitive prices from vendors that add value. Ensure there is supervision of policies, ordering, receiving and reporting. Don’t hesitate to revisit vendor selection and old contracts to start price negotiations. Lastly, if you frequently make online purchases, use free apps to track spend, hunt bargains and streamline online purchasing.
3. Not being ready to face sales slump due to unavoidable reasons
According to a famous venture capitalist, Fred Destin, To avoid such a situation, keep a check on your financial statements so that you are able to forecast cash needs. It is important and inevitable to have total control on the movement of money.
4. Receiving late payments from clients on a regular basis
80% of small businesses are still plagued by late payments and if this happens too frequently, it can potentially kill your business in the long run. It is very important to tighten up credit terms or create policies and processes to manage the situation. To avoid such a situation, some of the remedies could be to pull business credit for new customers, communicate payment policies early and often, incentivize early payments, make it convenient for customers to pay and enforce late payment penalties. Most importantly, do it all with a smile.
5. Paying bills late on regular basis
As important as receiving payments might look, it is equally important to pay bills on time as well. Find out the reasons for late payments. If it’s a cash flow problem, you need to start renegotiating your payment terms; or start looking for customers with better payment terms. Otherwise, it’s important to make a monthly budget and follow it. Set aside a specific day of the week just to go through accounts payable and sign checks.
Finances are the lifeblood of any business and no business can run without a consistent cash flow hence it is very important to be financially prudent and track your finances to stay ahead of the game.
First published here.