Many small businesses fail because they don’t follow good financial tips. When all is said and done, some businesses run out of capital.
Most people think businesses fail because of a poorly executed idea, the use of outdated technology like fax and landlines, or a product with no defined market.
The bad news is that about 40% of the time, these are not the reasons for the failure. What is even worse is that these businesses may have been able to thrive if they had stayed aware and on top of their financial situation. While this may seem a bit disheartening, here are some financial tips that will help you keep your business afloat with consistent, positive cash flow.
Create a Budget for Your Business
Having a budget for your business is one of the greatest financial tips you can take away. There are countless benefits offered by doing this. The first is that you can use your budget to avoid becoming part of the statistic mentioned above. Budgets should be viewed as a proactive and positive step for any small business.
When you set a specific revenue line in your budget, the numbers will help you figure out what has to be done by you and your team to achieve the figure. Some examples include how many hours you have to bill or how many products need to be sold. It helps you create a realistic goal to work toward that is measurable. It also helps you remain focused on that goal.
Budgeting for your business expenses helps you see where you want to spend your money and helps you monitor your expenses if your costs blow up. Try to keep your expenses lean, especially during the early stages of your business. Work to exist on the very minimum you can, and don’t indulge in any extravagances. Remember, these are things that will come later when your business has a solid foundation.
Learn to Manage Your Business Cash Flow
If you are new to the world of business, you may not be fully aware of what “cash flow” means. This refers to the timing of when money comes into the business and when it goes out.
For example, if you sell one of your products and then pay your suppliers on a 14-day term, but your customers are paying with 30-day terms, you will likely encounter a cash flow issue at some point. Even though this is an overly simplified example, it illustrates the point. In many situations, the cash will not be flowing fast enough, or someone (or several clients) won’t pay on time.
It is possible to navigate and negotiate your way to improved payment terms in some situations. For example, you can let the business know you are a smaller vendor and that it would be helpful to have the payment terms reduced from 30 days to just 14. You can also choose to invoice every week, rather than every month.
One of the best things you can do is build relationships with the main stakeholders in your company to help ensure that everything moves smoothly with the payment process. This should include managers who are approving and signing off on the invoices to the accounts payable professionals who submit the payments.
Cash Is Still King
One of the fastest ways to go out of business is to run out of cash. Your business will not last very long with no money in the bank. During the initial stages, be sure that your business runs on a cash-only basis. Focus on growing your business and only spending on the expenses that can be paid with the cash you have on hand. This is a great tactic to help motivate you to make additional sales to be able to invest more into your small business.
By doing this, you must pay attention to what is going on with your business. How much money is coming and when, and what the money is being spent on are things that should become your main focus. You can also use this information to help you make decisions when you are ready to prioritize your cash expenditures.
Remember, there is always going to be something that you can do without or that you can do for a lower price, at least in the short-term. Be sure that you are basing your financial decisions on how likely the expenditure is to bring more money into the company.
Don’t Exceed the Means of Your Business
One of the greatest financial tips you should keep in mind is to keep your expenses down. If you have to make a purchase, be sure it is a good deal. Wealthy people take steps to ensure they are living within their means. This is how you not only create a surplus of wealth but maintain it as well. This same concept should be used for your small business. You will have time to spend all the profits you earn down the road. Wait until you can really afford to do this for the best results.
Many business owners make mistakes in this area. This includes small business owners who want to travel or go to events without really thinking about the cost. As a small business owner, you have to plan carefully and spend your money with caution. This is the only way you will ever see the huge profits you have dreamed of.
Are You Building a Financially Secure Business?
Keep these financial tips here in mind to ensure you are doing the right things to build a successful business. Being informed is the best way to ensure your business achieves the success you want.