If you think that you’re the only one facing financial challenges in your business, you’re very wrong. There are hundreds, if not thousands, of other business owners who are currently facing the same challenges as you. And with the right management and care, the majority of those will come out the other side stronger for it.
At some point in their journey, almost every business is going to run into financial issues. Most commonly this is seen during the business’s key growth stages as they move from a fledgling start-up to an established business to a market dominating player.
The overwhelming majority of issues seen in today’s business landscape are related to cash flow. In order to tackle the most common issues, you need to have astute financial awareness and calculated planning. Having complete knowledge of your business’s finances as well as having a strategic plan in place will help ensure your long-term success. Most importantly, acquiring clear-cut answers about your finances will give you the clarity you need to overcome your financial instability.
Many entrepreneurs are burdened by their financial problems and the goal of this post is to provide some solutions that can help them recover. These industry tips and tricks are by no means secrets, but are applicable to around 90% of the businesses that are operating today.
So, let’s look at these practical solutions to the most common financial challenges you may experience in your business:
Problem: Lack of Cash
Solution: It’s fairly obvious that you need money to make money. Typically, business expenses range from marketing fees to payroll, production to office rent. Ultimately, your business’s cash situation is a reflection on your financial management and accounts flexibility.
If your cash is stuck, whether that be in stock or outstanding invoices, look up for ways to increase your reserves. A good way to start is re-organising your payment collection to settle payments more quickly, followed by reviewing your payment cost schedules to improve terms with your own vendors.
Problem: Sales are Good but Profits Are Low
Solution: Usually, this is indicative of extra expenditure or hidden costs hampering your profits and your spending can be out of proportion. Manage your expenditure by creating a purchasing policy with a system to make sure that you purchase the right materials at better prices.
Gain better visibility of expenditure and define your purchasing goals whilst sticking to a strict and realistic budget. Afterwards, ensure that there everyone is sticking to the policies, orders and reporting. Don’t be afraid to revisit your vendor selection and old contracts to initiate price negotiations.
Problem: Late Invoice Payment
Solution: Never take your eyes off your cash flow. In a start-up, the worst problem you’ll face is running out of cash, and nothing’s worse than running out of cash because it was tied up with your debtors. This is the most common problem faced by businesses where they pay later than the agreed timeline. This affects the cash flow of a business and it could lead to you going out of business. Almost 80% of UK businesses suffer from late payments issues.
If you are amongst them, renegotiate with your suppliers and create policies and processes to manage the situation.
For instance, inform customers/clients about your payment policies early and make it easier and convenient for your customers to pay and maybe consider introducing late payment penalties.
A good way to prevent unexpected fund shortage is to prepare key financial statements such as balance sheets, cash flow and income statements to forecast fund requirements. Most importantly, research and plan for alternative business funds to overcome cash problems such as cash flow finance and invoice finance. Look for a trustworthy finance provider that specialises in providing funds to businesses.
A reputable finance provider has the products and services to help small businesses manage their cash flow and overcome financial stability brought upon business by late payments.
Problem: Not Sure Which Funding Option to Choose
Solution: Firstly, be clear on why you require funds. A wide range of funding options are available to businesses such as crowd funding, business loans, capital, angel money, friends and family etc.
Different businesses have different requirements. Therefore, you need clarity on your current financial situation and to figure out risk tolerance for each funding option. Meticulously research and consider the upside and downside of each option and choose wisely.
Problem: Business is Slow Even After Launching Several Sales Promotions
Solution: If sales are slow, providing discounts is not the solution. Consumer- centric sales promotions can bring short-term profits to release some competitive pressure but it can hamper the long-term image of your brand. You’ll also notice some massive effects on your profit margins if you get in the habit of slashing prices.
Instead, revise your business or revenue model (i.e. how you make money out of your business). Try providing more value to existing customers by up selling and even cross-selling.
Problem: Cash Flow Management is Complicated
Solution: In simple terms, cash flow is the money that comes into your business versus that which goes out. Simple in principle, but not always so easy in practice. How you manage it over a period of time affects every element of your operations. Monitoring your business cash flow over time can reveal a lot of information regarding your potential fund requirement in the future. Never be afraid to seek advice from cash flow finance providers to help manage your cash flow.
Problem: You’re Not in Control of Payables
Solution: Create a budget if you don’t already have one. Regardless of industry, each and every small business should create a realistic operating budget to be ready for regular expenses such as utilities, wages or rent. This operating budget should be comprised of several other sub-budgets that act as a projection of expenses and income for a given period of time. Initially, draft your sales budget by simply referring to past sales reports. This will help you estimate your expenses and set some cash aside each month to pay for them. This will help you measure targets and prepare you to meet daily commitments.
Problem: Lack of Knowledge on Business Finance
Solution: You can always gain some valuable insight by picking the brains of people who have been there and done that and for that you can take the help of some fantastic business books. “A Manager’s Guide to Knowing What the Numbers Really Mean” is a great book that can help you gain greater knowledge on how to manage your business’s finances. Others include “Financing Your Small Business”, and “Finance for Non-Financial Managers”. You can also do your own research online and always seek help from a business finance advisor.