Keeping a small business afloat is almost always a daunting task. Aside from managing the often-chaotic day-to-day operations, you also need to work with your team on an array of tasks that include inventory checks and employee management. On top of these operational challenges, small businesses also need to worry about generating profits and establishing stable funding for the coming years.
That said, it’s important to have an idea of the financial headwinds you might face as you try to grow your business. From insufficient capital to tax reporting issues, various financial obstacles could paralyze your operations and hinder the success of your venture. In this article, we’ll give you an overview of what these obstacles might look like, along with some tips on how you can successfully move past them.
Lack of Access to Funding
If you’re just starting as a bona fide business, your revenue might not be sustainable enough to shoulder your capital and operational expenditures. To prevent cash from running out, you can consult a business advisor on how to secure additional funding from various sources. Sources of funds may include business loans, venture capital funding, individual investors, and small business grants. Other potential options include crowdfunding money and startup accelerators.
Let’s say it’s a normal day at your small coffee shop, but then your prized espresso machine starts to break down. Or maybe there was a particularly harsh typhoon that whipped through your area and caused significant damage to your storefront. These scenarios can happen anytime without any warning and leave a dent in your funds, potentially derailing your long-term plans for growing your business.
For these situations, small businesses need to get business insurance to help minimize financial risks. Depending on your policy, business insurance may cover costs for liabilities or damages to a commercial property. Apart from insurance, it may be ideal to know your options for getting extra cash to cover other emergency expenses such as equipment repair and replacement. Some of these options include getting a credit card for your business and securing a quick-apply cash loan online with flexible repayment terms.
Fluctuating Cash Flow
Ideally, your small business must maintain a steady cash flow to cover payments to suppliers, utility companies, landlords, and employees. With an inconsistent cash flow, your operations can go out of control and leave you struggling to stabilize your venture.
To help minimize cash flow fluctuation, you should strive to balance your accounts payable and receivable. Some strategies you can employ include promptly issuing invoices, establishing clear payment schedules, and minimizing debtor days. In addition, you may need to create cash flow forecasts in line with current market conditions and past performance. Doing so can help you establish a good contingency plan for your finances. Lastly, it may help to come up with campaigns such as promos, discounts, and bundles to drive sales and sustain revenue.
A lot of business owners secure loans or pay with credit to start their businesses. However, racking up large amounts of debt can negatively impact your startup, especially if you haven’t established a healthy income yet. On top of that, a bad credit score on your personal or business accounts can prevent you from getting approved for more loans.
If you’re stuck in a financial rut due to debt, you may want to apply cost-cutting measures such as selling excess equipment or subleasing office space you don’t use. You can also explore your options for consolidating debt to make repayments for multiple loans more manageable.
No Budget Plan
At its core, running a business should be systematic. You can’t just operate your venture with the hope that it will generate enough profit to keep the lights on. To help you map out your expenses and manage both short-term and long-term costs, it’s important to establish a budget and stick to it.
Ideally, your budget should cover fixed costs (rent, utilities, loan repayments), variable costs (raw materials, marketing, promos), and one-time costs (relocation costs, hardware implementation). Additionally, your budget should include factors such as your cash flow, profits, and savings for emergency expenses.
Mismanaged Financial Reporting
Keeping track of financial matters is just as important as acquiring and sustaining revenue. Failing to record or report transactions, taxes, and financial losses can create a blind spot and keep you from properly planning and allocating your capital. In addition, inaccurate financial reporting and lack of compliance may lead to fines and other serious repercussions with governing bodies.
With that in mind, you can improve your financial reporting through reliable bookkeeping services. It would also be ideal to have an enterprise resource planning (ERP) system to give you a full view of your venture and help you organize your finances, workload, inventory, and more.
Sometimes, small business owners add up total costs along with their margins to establish the selling price of goods and services. However, this could result in discrepancies between the calculated amount and the market value of the final product. To avoid pricing your products too high or too low, you should do some competitor research and price your products in line with the current market value. If you plan to kick up the price, you may need to provide add-ons such as a bundled product or an additional one-time service for free.
The Bottom Line: It Takes Good Management and Resourcefulness to Grow
Any small business is bound to face challenges as it strives to expand. Left unaddressed, these challenges can affect your venture’s capacity to stay competitive and survive. Still, you don’t have to be at the losing end despite these hurdles. With the right strategies, management, and tools in place, you can weather these financial storms and eventually turn your entrepreneurial vision into reality.
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