If you are a small business owner, then you are probably well-acquainted with the daily challenges that come with running a company. You may also already that the statistics for new businesses is not always so great - 50% of new businesses fail within the first five years. Thirty percent of those new companies will still be around after a decade.
For the brand new newbies, there are a number of hurdles that most business owners will encounter within the first few years, and one of those primary issues is low cash flow. According to recent reports, approximately one-fourth of new business failures can be attributed to too little money to keep the company afloat.
There are a few reasons why small businesses experience money problems:
- Too much money getting the business off the ground and keeping it going
- Not enough attention given to unpaid invoices/bad debt from non-paying customers
- Not enough understanding of the market
But even though many businesses failed because of cash flow issues, many of these problems can be fixed so that the business can continue to grow.
Getting in Over Your Head
A common money issue that many business owners encounter is a too-high start-up and overhead costs. You may have found the perfect spot for your clothing boutique, but the new clothing racks and top-of-the-line register, not to mention the steep rent, is putting a financial strain on your profits that you did not account for.
The solution may not be an overnight fix, but a good start is to begin evaluating your monthly expenses and seeing where you can cut back.
If you are still in the start-up phase with your business, consider slightly used/good condition tools and furniture for your business over brand new items.
Pay Me My Money Now
Another reason that some small businesses suffer from cash flow problems is, to the point, because of a low flow of money into the business. Especially in the beginning, it is important that you are paid (on time) for your service/product. Some business owners may try to let things slide or offer an extended due date on an invoice in order to garner more business, but those tactics can actually be detrimental to the bottom line.
When a client does not pay his/her invoice, the amount owed to your business is considered debt - and not the “good” kind of debt. Racking up too much bad debt could end up sinking your business.
The solution - do not allow customers more than sixty days to pay their invoice. Thirty days is preferable. You might even offer incentives (i.e. discount) to customers who pay early.
Missed It By That Much
Market un-awareness is another mistake that can cost a business a lot of money in sales if the business owner does not understand how/where/who to market his/her product or service. Even if you have the best product or service at an amazingly competitive price, and you either are not doing any marketing or you are not marketing to the right customers, your business can still miss the mark.
The solution is both simple and complex. Obviously, you need to market your business more and better. But how? Marketing tools like Google AdWords are available for business owners on any level. Search engine managementcan be complex, but it is still doable.
Another possible option for helping your company’s cash flow problem is to apply for a small business loan through your bank, but there may be other ways to fix your leak that do not incur more debt for you and your business. Take time to evaluate your business’s finances so that you are part of the good statistics.