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Would it surprise you to know that one of the major reasons small businesses fail is to do with budgeting and cash flow?
At the end of the day, they simply run out of cash.
When we think of business failure we’re more likely to think of a product that didn’t have a market or a poorly executed idea. Unfortunately, just over 40% of the time this is often not the case, and worst still, these businesses may have been thriving had they been on top of their finances.
10 Financial Tips to Help Keep Your Small Business Afloat
1. Create a budget
There are so many good reasons to do a budget it could be a whole other article! Let’s start with the fact it can stop you from being a statistic. A budget should be seen as a positive and proactive step in your small business.
By setting a revenue line in your budget the numbers can help you to break down what needs to be done to achieve that figure.
For example, how many products you need to sell, or how many hours you need to bill. It sets a realistic goal that is measurable and keeps you focused.
Budgeting for expenses makes it clear where you want your money to be spent and becomes a tool to help you monitor your actual expenditure if costs blow out.
I would always recommend keeping expenses very lean in the initial stages of your small business. Try to exist on the bare minimum and forgo any extravagances, they can always come later.
2. Manage your cash flow
Many people in small businesses may not have encountered the term cash flow before, or if they have, don’t know exactly what it is. In a nutshell, it shows the timing of when money comes in and when money goes out.
If you sell a product and you pay your suppliers 14-day terms but your customers pay you 30-day terms you could find yourself with a cash flow problem.
Whilst this example is simple, in business life it is not always that simple. There may be multiple payments to be made all at different times.
Sometimes the money is just not flowing in fast enough as someone is not paying on time. I have found that you can navigate your way to better payment terms in a lot of cases. These are some little things you can do:
• Notify the business you are a small vendor as this can sometimes get your payment terms reduced from thirty days to fourteen days
• Invoice weekly instead of monthly
• Build relationships with all the key stakeholders to ensure everything goes smoothly with the payment – this includes managers that approve and sign off on your invoice right through to accounts payable who make the payment
3. Remember cash is king
The quickest way to go out of business is to run out of cash! If you stopped receiving cash tomorrow how long would your business survive?
In the initial stages, run your business on cash only, growing your business and spending on expenses based on your available cash. You can use this tactic to motivate you to make more sales so you can keep investing in your business.
It will force to pay close attention to what is happening in your business. When and how much money is coming in, and what that money is being spent on.
It will also help with the decision-making process when it comes to prioritizing your cash. There are always some things you can go without, or do cheaper in the short term.
Base your spending decisions on spending money that will bring more money in the door.
4. Live within your business means
Keep expenses down as much as possible and when you do need to make purchases make sure it is a good deal.
Every wealthy person lives within their means, it is the way you create a surplus to build your wealth. The same goes for your business.
There will be plenty of time later to spend all the huge profits from your business when you can afford it.
I have seen a number of errors in this area. From small business owners that like to jet-set around the globe to attend events without thinking of the cost.
To small business owners that are continually studying expensive course after course but are yet to get a client.
5. Do whatever makes you the most money first
Write out your to-do list and then prioritize your tasks by doing whatever brings money in the door first.
It is no use keeping all your administration and low-ranking tasks up to date if you’re not getting the time to do the things that bring in money. If possible, delegate low-priority tasks to someone else.
In the beginning you may need to take on work that is not specifically what you want to do. If it is going to make you money and that is what you need to do, then do it.
6. Price yourself correctly
Your success will hinge on pricing your goods or services correctly. I am not saying this is an easy task by any means but it is one that you have to get right.
Under-pricing your products will leave you with a cash flow problem. Under-pricing your services is likely to leave you feeling resentful and working too hard for too little.
Over-pricing also has the ability to send you out of business if it means you are not making enough sales.
I find some small business owners are afraid to ask for what they are really worth. This usually tends to be a confidence issue.
It is important to remember that everything should be exchanged for a fair value. A customer will pay what your product or service is worth because it is of value to them.
7. Set up systems and processes
Get all your foundations set up properly and it will create a sturdy structure for you to leverage from.
This step is really important but often missed, or sometimes put in place after a mishap or problem has arisen. Don’t let this be you, think strategically from the beginning and save yourself some headaches.
Financially, this may include a simple accounting system, allocating money for tax and other liabilities that will need to be paid, setting up reporting, and considering things like a business credit card, retirement savings, and income and business insurance.
8. Don’t wait until things are perfect
Any chance to earn revenue is a good one! Don’t get hung up on the fact that you don’t have everything in place yet or that it is not exactly what you want to be doing.
There is no better motivator than just getting in there and starting, and I bet you will learn something of value along the way.
Being a small business owner is a big learning curve and takes you out of your comfort zone. Say yes to new opportunities even if you may feel a little unconfident. You may just surprise yourself.
9. Choose congruent and competent business partners
When I talk of business partners I mean clients and the suppliers that you work with to build your business and your brand.
These can include a product supplier, web developer, graphic designer, accountant, lawyer, and of course many more.
The key is to choose people that are aligned with your business and your personal philosophy, and you are happy with the way they operate.
This is important as they will not only be your business partner but also one of your business fans. You want them to care for the success of your company.
Working with business partners that are not aligned with your business and your values can be draining. In the long run, it will be detrimental to your business success and personal well-being.
Remember that not everyone is an ideal client.
10. If you don’t know what to do seek help
There is no one person that has the answers to everything so don’t be afraid to seek help where you need it. Play to your strengths.
If you are not a numbers person then align yourself with someone who is so that you can focus on what you are really good at, growing your business.
Article written by Naomi and republished with permission from Ngage Prosperity, updated by the Women Who Money Team.