How to deal with some of the typical business financial challenges you will likely face as a small business owner
Running a small business is already a challenging endeavor. Aside from all the challenges small business owners face on a daily basis, like risk and staff management and a never-ending race to beat the competition, there are the inevitable financial challenges you – as a small business owner – will need to find a way to overcome if you want to stay afloat.
It’s important to understand that the financial challenges you’ll be faced with don’t only refer to finding ways to fund your business; rather, you’ll also need to find a way to secure your cash flow. Namely, 82 percent of businesses fail due to cash flow problems, so you should do your best not to end up in that category.
Here’s a list of the most common small business financial challenges and a few tips on how you can overcome them, so pay attention.
Timely bill payment
Right off the bat, you need to understand just how important timely bill payments are. Even though missing a bill payment or two might not sound too scary, you need to know that every missed payment will affect your credit rating, which is definitely something you should avoid at all costs. Therefore, make sure you pay your bills as soon as possible.
Also, apart from trying your best to make regular payments, you should try to find a way to make the entire process as seamless as possible. So, for example, you should consider the electronic bill payment system because it allows you to save both postage money and time. Here, you have three options to choose from: you can either pay your bills through your bank, the biller’s website or you can choose to hire a third-party bill payment service. So, explore all the possibilities and stick to the option that works best for you.
Emergency savings account
Another challenge small business owners are faced with is creating an emergency savings account. We can’t stress enough the importance of having an emergency fund, so you should definitely consider all the ways you can create one. For example, you can choose to store away your tax returns or any excess income you can afford. Ideally, your emergency fund should be big enough to cover three to six months of operations in case your business starts losing money instead of earning it.
The easiest way to create such an account is to look at your business’s expenditures and try to identify the ones you can cut, or at least reduce. For example, instead of a business trip, opt for a video meeting whenever possible, choose less expensive company outing options and reduce your company’s day-to-day spending as much as possible.
Debt collection system
Another thing you need to pay attention to are the debts of your customers. People these days have a lot on their minds so forgetting something like paying a bill can happen to any one of us. That’s why you should automate this entire process to make things easier on both you and your customers.
For example, implementing a direct debit system that will automatically send reminders to your customers before their funds are automatically deducted will encourage them to check they have money available to make payment. And should their payment fail, you can choose to implement automatic rebilling. Features such as these will make the entire process of debt collection significantly easier.
Remember, you’re running a business, not a charity, so you shouldn’t feel bad about finding the alternative ways to collect what legally already belongs to you.
Finally, to make sure you stay on the right track, you should pay attention to your financial statements. These consist of a cash flow statement, an income statement, a balance sheet and a statement of shareholders’ equity. So, unless you know how to “read” each part of the financial statement, you should learn it as soon as possible.
On the other hand, instead of wasting your time on acquiring only the basic knowledge on the matter, you can outsource your finances and hire an accountant to manage these and similar tasks for you. This is a particularly popular option among startup and small business owners as they usually can’t afford to have a full-time financial team in-house.
So, generally speaking, you should do all that’s in your power to keep your finances in order, as financial mistakes can ruin your entire business. Therefore, to make sure your business is safe, be proactive in implementing the right systems and keep an eye out on your finances so that you can take action as soon as you notice something’s not right.
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