How Businesses Can Run Smoothly Year Round
A recent study carried out by Bloomberg suggested that four in five businesses fail within the initial 18 months, meaning that there’s only a slim 20 percent chance of success. There are many common mistakes made by new businesses that lead to failure that could otherwise have been prevented. While launching and sustaining a successful business can prove to be extremely difficult, particularly in today’s economy, it is possible. Read below to discover some advice on how your business can run smoothly through the year.
Many fine business ideas have failed due to poor financial management, it’s simply not enough to rely on the strength of your product. Invoice management is essential for your business to run smoothly throughout the year, with many profitable businesses having gone bankrupt due to poor cash flow management. Small business invoice software not only allows you to create professional invoices, it also delivers business insights by providing built-in statements and reports that show your companies’ financial health. Cash flow difficulties can arise in a number of situations, not just when the company records low profits/losses. It’s not uncommon to see profitable companies struggle with cash flow when the following issues occur, over investment in capacity, holding on to too much stock and allowing customers too much credit. Furthermore businesses can actually suffer from expanding too quickly if their cash flow is not managed correctly, their short term profit not covering the costs of expansion. Good online accounting software will allow you to keep up-to-date account records, warning of any potential pitfalls.
To prevent cash flow problems arising there are three key elements you’ll need to examine. The first is accounts receivable, or simply put, what you are owed by customers and clients. One way to improve your cash flow in this area is to attempt to get your customers to pay you as quickly as possible. This is often easier said than done but one way to do so is offer your clients incentives, such as early payment discounts. Also if you are going to offer your customers credit then make sure you have established standards for who is eligible for it. Secondly, you’ll want to focus on your accounts payable, or simply put, who you owe and how much you owe them. You’ll want to manage your accounts payable the complete reverse to accounts receivable, try and extend the date you can pay for as long as possible. Be careful though, many suppliers charge late fees, which you will want to avoid. Finally, it’s important to anticipate when your shortfalls will come and always maintain cash in reserve to cover them. Sustaining your new business will depend heavily on how you negotiate shortfalls.
All in all it’s clear to see that financial management, and in particular cash flow, is an integral part of any business that hopes to be successful and sustainable. It’s something that is often overlooked by small businesses even though they need to keep on top of cash flow more than anyone else. Having an expert managing a small company’s finances and cash flow could well make the difference as to whether it joins the 80 percent of new businesses that fail or the 20 percent that succeed.
Edited by Maurice Nagle