One of the key reasons that small businesses in particular fail, is because they run out of money. The suggested figure is thought to be around 80-90% of small businesses.
“Cash is King”
A statement often used in the business world and for good reason, because a business cannot do anything without cash (at least not for long). Careful cash management is an integral part of business success to avoid feeling as though you are trying to paddle upstream without any oars.
So, how do you take control of your cashflow to boost your chances of business success?
1. Know your break-even figure (i.e. the sales amount you need to achieve to cover your costs such as rent, staff etc. This also enables you to plan using your startup capital (e.g. from a bank or personal loan) more efficiently.
2. Avoid too much focus on profit. For example, you may have issued sales invoices and taken them into account when assessing profit, but if your customer hasn’t paid you yet, that money isn’t in the bank and you may not be able to pay your rent at the end of the month until it is……..
3. Always have a cash reserve, especially as a startup, as shortfalls in cash happen to all businesses, despite great planning. Business survival is likely to be heavily influenced by how you manage these shortfalls and deal with the lean times. If you have reserves in place, you can weather the storm and ensure that you keep your eye on generating future profits, rather than getting absorbed in micro-managing cash to survive day-to-day.
4. Manage funds well, by employing a trusted accountant or CFO if you can. If you really can’t put this step in place, ensure that you stay on top of your books and records, the best way to do this is to use a software platform, particularly one that enables you to perform all or most tasks and keeps them as stream-lined as possible, such as one of the many packages that enable you to upload bank transactions directly and does much of the work of keeping your business cashbook for you. Such packages are relatively cheap and their cost can be spread via an affordable monthly amount which helps you manage your cashflow. Also, many of these software solutions have a built-in overview of the company cash position, profitability and other key important finance indicators, enabling you to see if you have profits to draw dividends etc.
5. Strictly manage customer debts and consider offering discounts to get money in early.
6. Negotiate longer payment terms with suppliers where possible to give you a little more flexibility regarding the timing of payments out of the business.
7. Only spend money on essential costs, especially in the earlier years until the business is comfortably into profits.
8. When considering staff, only hiring when you need to is sound advice, but so also is making sure that you hire someone who is more highly skilled. Whilst more expensive, someone of the right calibre will be cheaper than two average employees and will be able to cover the work of two lower-skilled or average employees and really add value to your business.
9. Invest in technology solutions and ensure that you back up your data to a secure cloud source in order to avoid hard drive corruption, data loss or theft. Backing up to a cloud based storage facility will also enable you to log in wherever you have internet access for flexibility.