PAYSTUBMAKR.COM Presents: there are Number one Reason Small Businesses end Failing – And How To Avoid It
Cash flow.
Money is one word, and cash flow is two words that make the world go around or fall. Small businesses rise and fall by their cash flow.
The term cash flow has to do with most small businesses failings. Lake of money or cash that does not flow is the main reason for the small business failing, up to 82% of small businesses close the doors because of cash flow problems.
If you ask the small business owners, they will tell you that the cash flow is the number one reason for failing businesses. Looking closer to the reality can make discover that the term cash flow is used though it is just a symptom of different underlying causes.
Looking carefully into this underlying causes can show you from where the symptoms are born and how to avoid the fall of the businesses
1. The budget must be made as short as it is viable. Or use the term lean and mean.
Being careful with the way you spend the money is not necessary only avoiding wasting money on luxury. As the business grows and money comes in, there is a dilemma between running ahead into growth, buying new equipment or moving to a bigger place or maintaining what was achieved and building financial strength. Being reserved on singsongs and build a financial mattress or save money for a rainy day will give your business the power to cross the bad sea. Running into investing can leave you too short to cross hard times. You are not immune to markets falling or other time of crises.
The good time does not mean that you can spend you’re a little fortune, be frugal in good time because in the bad times you will not be able to save. Worried about your ambition to be a big fish in the Sea? You better cry on a good deal that you did not make than cry about a bad deal you have done. At the good times, you will buy anything on high price, at the bad times cash from your saved money can get you the power to take over the competition for less money. Cash is power, never forget it.
2. Your credit should be protected.
Does business start to fall apart slowly?
The first symptom you often see with businesses is a slow but constant delaying on paying bills or changing payment terms from the regular 30 days to 90 days. That is an alarming act. The business is short in cash. The next symptom is looking for the vendor they can drag more with paying its bills. From this stage, it is evident that only a miracle will save this business. Vendors start the collection and stop supplying. Lake of materials or services what makes the business not delivering on time and losing sales which means losing income so it is a negative magic cycle down and down to the point that you can not get a loan anymore like the old saying, “you can only get a loan when it looks like you don’t need one.” A credit will be impossible or very expensive that it may be one more nail on the business coffin.
3. Inventory managing is your life and death issue, too big stock will leave you drained of dollars, to small inventory may make you lose the same sales. Read: Inventory Management
Your poor managing of the inventory can create a total collapse:
-
Order stuff you do not need.
-
Let items to expire and become worthless instead of selling it for any price that can be sold.
-
Let your inventory go down to the stage that you can not fulfill orders.
-
Extra cost for urgent complete of inventory for not accomplished orders
-
Losing the customers that were disappointed by unfulfilling the orders
-
Losing employees time on trying to fulfill back orders and looking for urgent orders to fill the inventory
-
Paying unnecessary space for inventory you need not.
All the above is a result of not adequately managed inventory.
Today we have many ways to control the inventory of small businesses; It is much easier to keep inventory levels on track, in some cases, it is a whole system that is connected to the point of sale and adjusts inventory on a real-time basis including emits Purchasing order for the missing products. When you write your business plan, include the purchase of one of the inventory software. Do not let yourself be part of the 43% of small businesses that do not know what they have in their warehouse or the 55% that do not know what asset they have. Remember, “In business, all is about numbers.”
25 Tools That Help with Inventory Management for Small Business
4. Must keep a cash reserve
Imagen yourself that businesses are passing hard time sales are slow for some time, let us say three month or 6 months. What are you going to do if you are not that strongly positioned and sales are too slow?
You must keep your building the business, but at the same time and with higher priority you must build your financial reserves and at the same time keep your credit scour in a good level by taking a small loan for a short time and religiously pay on time. Dollar cash saved and a dollar of credit that can help you cross bad time.
Your guide for Small-Business Online search for Loan
Keep your expenses on a short leash, have your belt tightened and built your power, it will be much better than fall down and have to look for a job for your self.
5. Get yourself a great accountant (or CPA).
Cash flow does not become short overnight; it is a process of degradation. The small business owners or manager are very busy people I many level and disciplines, usually under pressure like firefighters putting out many fires at the same time. The biggest fires first, means sales, clients missing employees dealing with today issues and leaving the future problems for tomorrow.
How to find an accountant for a small business
Making money is very different than counting it. You better spend your time and effort in making money and get a good accountant or better a CPA to be your eyes on the numbers, remember “Business is about numbers.”
A business needs a team to manage it and executed the activities that make it produce money in a small business it is built by a few people while in a big company those a departments with many employees that do the job. Sales are where the money is made, and the other parts support for the sales like warehouse, store, shipping. Purchase and office for the administration. You have money that comes in from sales and money that go out by procurement, payroll, and paystubs. For the control and taxation of this, you need an accountant or CPA to feed you with the numbers of your business. An eye that will be your alarm when money starts to have a problem in covering your costs.
It is not just bookkeeping (The common case) what you need; it is someone that see numbers beyond the 1,2,3, an accounting person should be proactive, means looking into the future and not just putting the figures on a balance sheet. Using today’s technology you do not need finances executive to be in your office, only one person that input the data into a computer, send it on a network to the person in charge of accounting and it is done.
Remember that I recommended you to make a viable budget? Do not miss the technology of today.
PAYSTUBMAKR.COM Team thanks you for reading this article