You did it! After many sleepless nights, lots of careful planning, and tons of research, you managed to acquire the startup capital you needed to get your business going so why aren't things just humming along as they should be? Because starting a business and keeping it going are two different challenges. You can overcome them both, but only if you understand and prepare for some of the top financial challenges for business owners.
Cash is king, and you're in trouble without it. You need to buy products and materials before you can sell them, which means a lot of money is going out the back door. Without adequate cash flow coming in the front door, you're going to run out of money. It's crucial that you set payment terms rather than leaving your invoices open-ended so you know when to expect payment. You'll also need to bill promptly, make paying you easy for your customers, and focus more on getting cash than on earning profits. One way to do this is to make sure you're competitively priced. The old formula of calculating your expenses and then using a standard markup may result in a price point that just doesn't work for your customers.
You can also improve your cash flow by slowing down the rate at which your money leaves. Take advantage of early-pay discounts offered by your vendors, negotiate discounts when you can and ask for extended payment terms when it's appropriate to do so. Keeping employees and customers happy will also help. It costs less to keep an employee than to find and train a new one, and the same is true of customers. Ensuring repeat business is easier than seeking out new clients.
No business owner has a crystal ball to predict the future. Sometimes unexpected expenses or problems creep up, and this is one of the top financial challenges for business owners. Whether it's something as outrageous as a COVID pandemic or something as benign as a leaky roof, your business may have an unexpected expanse to deal with at some point. It's easy to forget this when making a business budget or thinking about buying some new equipment but make sure you don't expand yourself right out of business. Keep a portion of the money you reinvest into your business safely tucked away for a rainy day, even if it means moving things along more slowly than you would like.
Poor Marketing Strategies
You may not think about marketing when you think about your business finances, but you should. Marketing is often a significant investment, and poor marketing strategies and campaigns mean spending money and getting a poor return on the investment. The right marketing strategy costs money, but it also brings in new customers (and their money). Surveys suggest that 15% of small business owners list marketing as one of their top financial challenges.
Whether you're working with a professional marketing firm or doing your own guerilla marketing in-house, the biggest mistake you can make is not tracking the results of your marketing and advertising efforts. Make sure you're getting enough bang for your advertising buck. If you're not, change tactics. Don't keep throwing money into a marketing abyss.
The Wrong Kind of Debt
Unless you have a bottomless money pit hidden somewhere, your business will likely need to borrow money at some point. It's cliche but true that you must often spend money to make money. Sometimes that money needs to be borrowed. If so, examine your options very thoroughly before going into debt. Would a business line of credit be best, or would an SBA loan better serve you? It can be hard for young businesses to get the capital they need, which makes it easy to focus on figuring out how to get the money now and worrying about paying it back later. Don't fall into this trap. Try and find the best source of money for your situation and devise a repayment plan before taking a dime.
Lacking a Budget
One of the top financial challenges for business owners is keeping track of their money. Your bank account balance is a moving target that's changing all the time as you spend and deposit money. It's incredibly easy to find yourself spending more than you're taking in if you don't track it all with a budget. Yes, sitting down and making a budget can be pretty boring. But it's absolutely crucial that you make one and stick with it so you can plan for growth, know how much money you can set aside for the unexpected, and foresee any possibilities for upcoming cash shortages. This lets you fix problems before they happen.
One of the best gifts you can give your business is adequate insurance. Depending on the type of business you run and where you operate, you may need a few of the following types of insurance:
- General liability
- Product liability
- Professional liability
- Commercial property
- Home-based business
If you don't have insurance at all, or if you're underinsured, all it takes is one incident to potentially put you out of business. Depending on your business structure, you could lose more than just your business - some legal structures allow potential litigants to pursue both your business property and your personal property. It can be tempting to skip the insurance when you're on a tight budget since you only need it if something goes wrong.
If you can succeed at managing the top financial challenges for business owners, you greatly improve your chances for success and ensure that your business will be around for many years to come. Success means not only getting on top of these challenges but staying there for the duration. A good way to do so is to subscribe to the EMA newsletter for ongoing tips and tricks about tackling the issues your business faces.