Have you ever thought that your company’s financial challenges were uniquely your own? If so, don’t fret — you are not alone.
In fact, it is not uncommon for small businesses to experience a variety of financial challenges as they navigate entrepreneurial growing pains which are often likened to a firm moving from childhood to adolescence and then adulthood.
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From a lack of access to capital and underestimating cash needs to burning through existing cash reserves, financial knowledge and strategic planning are essential for long-term success. Most importantly, gaining straightforward answers can give you the courage to overcome common financial problems in business.
With this in mind, let’s empower your financial success in years to come with viable solutions to ten common financial challenges you may experience in business:
1. We don’t have enough cash to maintain daily operations.
As entrepreneurs we know first-hand, that it takes money to make money! Typical expenses range from marketing and merchant fees to payroll, rent and production costs. Ultimately, your cash position is a sign of financial strength and liquidity.
So, if you have been strapped for cash lately, look for new ways to maximize reserves. Start with streamlining payment collection processes to settle payments faster and then review payment disbursement schedules to optimize terms with vendors.
2. Our sales are good, but our profits are really low.
Generally, this indicates over-spending or hidden costs eating away at your bottom line — your expenses could be out of control. Reign in expenditures by proactively creating a purchasing policy and system to ensure that you are buying the right materials at competitive prices from vendors that add value.
Gain visibility into your expenses and clearly define purchasing (i.e. procurement) goals with a strict budget. Then ensure there is supervision of policies, ordering, receiving and reporting. Don’t hesitate to revisit vendor selection and old contracts to start price negotiations. Lastly, if you frequently make online purchases, use free apps like Slice to track spend, hunt bargains and streamline online purchasing.
3. We experience cash shortages on a regular basis; we weren’t ready for the seasonal sales slump that just hit.
According to venture capitalist Fred Destin, you should always keep your eye on cash – dynamically. Destin suggests, that “in startups the only real sin is running out of cash, and the cardinal sin is running out of cash unexpectedly. So whilst you may not need a CFO, you sure need someone who understands cash flow and can give you the confidence to know when it’s running out.”
One sure fire way to prevent unexpected cash shortages is to hire a CPA to regularly prepare key financial statements (e.g. balance sheet, income statement, cash flow statement) to forecast cash needs. Most importantly, gain a working knowledge of your finances. If you prefer a DIY approach to financial education, take online courses via Coursera and Udemy.
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