Overcoming the Top 3 Financial Challenges Faced by Entrepreneurs


Mark Oswego

May 13, 2021


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Accounting & Finance

As the old saying goes, Cash is King, but many small business owners don’t know how to get it. Smaller companies often lack the clout of large corporations, who have no trouble securing financing if and when they need it. Fortunately, you can overcome all of the financial challenges faced by entrepreneurs. Those who learn how to deal with these obstacles are much less likely to see their business fail.

Improve Inconsistent Cash Flow‍

Person paying in cash

When you run a business, customers carry cash in through your front door while vendors carry it out through the back. You're in trouble if your vendors carry off your money faster than the customers bring it in. One solution to this problem is accelerating the pace of incoming cash.

To do this, try shortening your payment period. For example, if you give your clients 30 days to pay, you can improve your cash flow by shortening your terms to 15 days. If you wish, you can also consider giving clients a small discount if they pay within 10 to 15 days. This will cost you a little, but it can drastically improve your cash flow situation and prove well worth the cost.

If you run a service business doing work such as construction or landscaping, it's a good idea to ask your clients for a deposit. If feasible, this deposit should cover all of the expenses you'll incur during the job. Having the money upfront gives you cash to work with now so you can pay your vendors.

Another way to encourage prompt payments is to make it easy for clients to pay you. Digital invoicing, for instance, allows you to bill your clients faster, but it can also make it a snap to pay your bill with a few mouse clicks. Accept as many forms of payment as you can, and don't charge customers a service fee to use any of them.

Want even better consistency? Consider offering service plans or some type of subscription service. This can provide a steady monthly cash infusion and give you some consistency in your cash flow.

Getting paid on time improves cash flow, but first, you need clients who owe you money. Make sure your sales team is constantly looking for and following up on leads. It's also smart to keep courting customers who you've worked with within the past and who pay promptly. Make sure these clients are well taken care of.

You can also improve your cash flow by speaking with your vendors. If you've been a good client in the past or have a good credit score, you may be able to negotiate longer payment terms. For example, if your vendor currently asks for payment within 15 days, see if they'll give you 30 in the future.

Use a Budget‍

Someone budgeting with a calculator and a notepad

Having a budget is crucial. If you don't know where you're going, how will you know when you get there? Take the time to sit down and calculate how much money you anticipate bringing in and how you plan to spend it. If your expenses are higher than your income on paper, you'll never survive the reality. Your budget is your plan. Work with it and tweak it until you have set realistic goals and know where you stand.

Once you've made your budget, use it. Don't throw it in a drawer and forget about it. Refer to it at least once a month and verify that you are where you thought you would be. If you're not making it, shift your priorities before the end of the month while there is still time. Cut any expenses you can, motivate your sales team, postpone that equipment purchase or devise a payment plan with your vendors.

Even if you find yourself right on target with your budget, make sure you consult it before making financial decisions. For example, are you running far enough ahead to tuck away some emergency funds or make a large purchase sooner than anticipated? Or are you running well but without wiggle room? All of this information can help guide your choices so you can make good decisions.

Expect the Unexpected‍

Unexpected expenses are one of the biggest financial challenges faced by entrepreneurs. Broken equipment, a leaky roof, or an accident in the company car can prove extremely costly. You must budget and plan for life's occasional monkey wrenches. One way to do so is, of course, to pad some wiggle room in your budget and set some money aside so you can handle the situation. There are also other ways you can help yourself.

Small business owner looking for Business Insurance in the laptop

Start by making sure you are properly and adequately insured. Small business insurance can cover you in the event of a worker's compensation claim or a liability issue. Insurance can also protect business assets such as your company's vehicle or building.

You may also wish to open a revolving line of credit with your bank. An open line of credit is an easy way to get cash quickly when you need it. If you don't need it, you have the option of simply not using it. If you do, you can access the money quickly and then repay it over time. Just make sure you can live up to the payment schedule when it's time to put the money back.

One of the best things you can do for your business finances is to spend money carefully, putting your resources where you can get the most bang for your buck, as they say. A carefully constructed marketing campaign is an excellent way to do that. The more customers find you, the more work you'll have, and the more stable your finances will be. So if you're on the hunt for more customers, call email one of our marketing associates today. We can help you find more paying clients to stabilize your cash flow and grow your small business.

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