Knowledge of the financial needs and problems that face a business from time to time could mean the difference between growing and closing your business forever.
Successful business owners understand, anticipate, and mostly avoid financial problems, but they also know how to repair the damage when problems do occur.
Insufficient or No Financing
Cash for a business is like blood for the heart. Without a constant flow, you’re in trouble. Businesses need money continuously.
Whether you use investors to raise money or obtain business loans, underestimating your cash needs is a critical.
Determine how much money you’ll need for whatever phase your business is in and ask for it.
Poor Cash Management
Even highly profitable businesses need to manage the money that comes in. Know your accounts receivable collection days so you are aware of the delays that occur between the billing, the time you collect, and the time you must make payments.
Counteract cash flow problems by knowing exactly when you have to pay, the exact amounts, and exactly how much you’re expecting to take in—and when.
In addition, manage accounts receivables aggressively; don’t be afraid to collect from people who owe you money.
Every business needs a budget to plan for regular expenses, such as utility bills, rent and wages. Estimate their costs over a period of time, such as a year, and set aside cash each month to continue paying them.
Don’t forget to set aside money monthly for bills that come due quarterly, semi-annually, or annually, so you aren’t caught short of cash.
Establish a monthly break-even sales point and check sales progress daily.
Putting Off Difficult Decisions
Fear of making decisions could be more hazardous than making a wrong decision. Making no decision has at least a 50% chance of being wrong. Putting off making hard choices almost always costs money.
Write down the problem. List all possible solutions. State the good and bad of each decision. Choose the best one.
For a business owner—like a squirrel—it isn’t whether you go out on a limb; it’s which limb and how far. But taking risks contrary to your business’ goals, mission and purpose, lead to financial trouble.
Assess risks carefully, evaluating them against your company’s strategic plan. Always weigh the risk versus the potential reward.
From beginning to end, your business should have a plan. Begin with the end in mind.
Write a formal business plan and use it as a roadmap, checking off mileposts as your business grows.
A plan helps you increase cash flow, estimate budgets, and determine when you need additional financing.
Create an income and expense pro forma and monitor it monthly. You can’t imagine how much this impresses your banker.
If you can’t write it down, you haven’t thought it out. The investment of time and effort will repay you many times over, in both financial reward and peace of mind.
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