For small businesses, cash is king. You need it to start, operate and expand your operations but many business owners often have trouble managing and maintaining appropriate levels of cash.
Inaccurate cash flow statements or lack of available cash can affect not only your business’s everyday operation but also outside factors like loan eligibility.
A new business must avoid being bogged down by branding and marketing costs. Knowing how to make your money go a long way is key. This is important because it is sometimes difficult to see where your money will be best utilized, particular at the start-up phase of any business. To effectively manage the cash is very important especially when you are invariably bootstrapping, putting some of your personal savings towards your venture to keep your business developing. Therefore, getting your money to make money is vital.
There are many businesses springing up daily but it is inevitable that many will fail. To avoid this, there is need to steer clear of making big financial mistakes because there is nothing worse than your business losing more money than is necessary.
Any start-up must avoid as much as possible extra costs. A big one is not hiring until you are ready. You must be able to justify new hires. Employees are one of the biggest costs in any new business, although there is no doubt that they will be the ones who in future can drive your business forward but it must be done with caution.
Hiring people you do not require is a leakage to cash flow. It is better to hire part-time support or sub-contractors depending on the demand of your start-up. Atimes, combining administrative work with other aspects of the business can help to make you a more dynamic entrepreneur and help round your skill set.
Setting up of new business usually takes long gestation period than imagine and cost more than your estimates. For these reasons, you have to be flexible and should not drain your resources too soon. With the dynamic environment we are, not everything will go perfectly to plan. This is why you must be more tactful and cautious with spending so that when you have to compromise on timing, you have a cushion of support.
Some new businesses commit a lot of money on branding and marketing cost when there are many alternative ways to promote business at little cost. There are social media platforms to get to potential customers. It is a free content-based tool to get your business noticed.
Spending money on expensive branding companies can harm your resources, particularly as a new venture when your direction is evolving and most susceptible to change.
Wait a while for at least six months before heavily investing in the branding side of your business.
Making social media platforms as your vehicle to promote your business at start-up is key because business gains exposure without breaking the bank, not spending too much on marketing but still benefitting from an online presence.
It is undeniable that new businesses have to find a way to manage their costs if they have any chance of survival. This is why the first sale is so important, and creating a profitable business is key. At the start, be frugal and push yourself, so you do not have to push others.
After all, taking on challenges is what being an entrepreneur is all about.
In summary, to avoid a cash flow crisis, emerging businesses must take note of the following:
- Cut back on pointless spending and costs
- Avoid laying out a lot of cash for unnecessary quantities of stock.
- Regularly check your cash flow forecast to keep on track with finances and to avoid shortfalls.
- Send out invoices promptly and be quick to chase overdue bills.
- Consider all funding options including hire purchase, leasing, loans and invoice discounting.
- Get to know your customer payment dates and do not ignore irregularities or delays.
- Assess the frequency with which you pay supplies, tax bills and so on. It can be made more flexible or by instalments.
- Have a warning system in place so that if you are heading towards the red, you know as soon as possible.