Even the most successful startup will have some growing pains, it’s a natural part of maturity for any business.
However, you have more control over those hard lessons than you might think. For example, cash flow can be a massive stumbling block for many SMBs and often causes premature closure because bills can’t be paid, inventory isn’t be maintained and employees get frustrated. This issue is actually quite easy to solve if you have a good head for bookkeeping.
Businesses Fall Down Due to Cash Flow
According to reporting by Forbes, approximately 80 percent of small businesses fail within the first 18 months. Don’t linger on this figure, it’s easy to let it overwhelm you when you’re trying to really get a hold on your market, but you should always be aware of it. Cash flow is perhaps the most important element in the early years of your company. It’s not a matter of having enough money to get started, but more of an issue of keeping it flowing.
Here are three major common cash flow problems and how to solve them:
- Not working within a realistic budget. Companies, like households, have to learn how to budget their money for success. Many entrepreneurs like to practice “fly by the seat of your pants” accounting, but the truth is that you’ll experience a lot less stress and a lot more profitability if you have a budget that can be maintained in the long term.This way you don’t accidentally spend all your lead generation money and come up short when it comes time to hire an answering service to do your lead capture. Balanced books can be a really beautiful thing for cash flow.
- Over-confidence in future sales volumes. Whether you’re selling bike parts or running a pet salon, it’s vital that you already know your market and its potential before you take the plunge. Unless you have an endless supply of startup funding, profits that never actualize can be the death of your company.Work with a mentor in the business or launch your brand slowly so you can get a good feel for realistic income potential. You’ll be glad you did when your business reaches its second birthday.
- Forgetting to put a little back for a rainy day. There is absolutely no reason to not be putting money back for a rainy day. You simply never know when consumers might decide to stop consuming or you hit a dry spell due to some kind of marketing catastrophe.Not only does a financial pad allow you to even out the rises and dips in income you’ll experience, it gives you a way to wrap things up if you decide your business needs to close. You should take 15 or 20 percent of your startup funding and put it back and continue to contribute 10 to 20 percent to that fund monthly as your business expands for the very best results.
Many small businesses make cash flow mistakes, but that doesn’t mean that if you have your company is sunk. Today is the day to fix your financial mess, whether that means adjusting your profit forecast or simply starting a savings account for your company’s future. You can beat the odds with a little attention to the financials and some careful planning.