Starting your own business is a dream, but for some, it can quickly turn into a nightmare. According to a recent study by U.S. Bank, 82% of small businesses fail
due to cash flow issues.
That’s a startling number for any small business owner, but don’t let it put you off from fulfilling your business dream. The cash flow issues encountered by the majority of new small businesses are entirely avoidable.
In this article we cover everything you need to know about financial management to make sure that you and your small business don’t join the 82%. Read on to find out three great tips about managing small business finances.
Create a Budget Plan
It sounds obvious, but unfortunately, it’s one area that many small businesses fall back in because they simply don’t understand the basics of creating a budget plan. The two guiding forces behind any good budget plan are frugality and pessimism.
Frugality means searching out the very best bargains and deals when spending your capital. Can you save on some of your business equipment? Do you need to upgrade your systems just yet? Could you lease software rather than buying it outright? Is this spending sustainable?
All of these questions will help you from falling into the trap of overspending
and sinking your business in those formative years.
The second guiding force of our budget advice – pessimism – might sound incongruous to the American Dream but it is absolutely vital to your business success. When projecting future sales and growth eschew positivity and hope for pessimism.
If you do this you will prepare for the worst, work out budgets to suit lower sales and also come up with innovative ways to increase revenues. This pessimism will also help to keep you grounded and reduce the risk of overspending.
Monitor Incomings & Outgoings
Too many new business owners treat their company accounts like their personal accounts. This is a guaranteed way to make sure that your business runs into financial difficulties.
For your business to stand the best chance of success you need to be able to explain every single outgoing and incoming. The best way to be able to do this is by utilising software that enables you to completely detail your financial transactions.
Ditch the pen and paper and digitise things. Use voucher checks
, learn how to properly use a spreadsheet and keep on top of your incomings and outgoings.
Manage Cash Flow
When you go into a store to grab your groceries you pay at the cash register. If you can’t pay, then and there you simply have to put your groceries back on the shelf and leave the store.
In business things don’t work like that. You might carry out some work for a corporate client that costs you a lot of money in time and resources and then have to wait three months to get paid.
This isn’t a one-off occurrence either, in fact it seems like a purposeful tactic by some of the country’s biggest companies. USA Today reported in 2020 that American companies with more than 500 employees paid their suppliers on average 15.6 days late.
You’ll need a contingency plan to help your small business through these fallow periods of waiting for bills to be settled. Which brings us full circle to our first point. When creating your budget plan, be pessimistic, expect clients to pay late and put away a stash of cash to help you through when the worst happens.