How Small Businesses Can Overcome Challenges in Their Finances
Operating a small business comes with its fair share of challenges. But no challenge is bigger than managing and controlling finances.
Daniel Groves outlines five key steps SMEs can take to keep their finances secure.
Money problems come in all shapes and sizes, but more often than not the biggest financial issue which can make or break a small business is cash flow. Studies have shown that more than 80% of small businesses fold as a result of poor cash flow. These mistakes are easy to avoid, if you plan for them before they become a problem.
Make sure bills are paid on time
It might sound obvious, but never underestimate how important it is to pay your bills on time. Not only does this mean they won’t go up in cost due to interest charges but missed payments can also affect your credit rating, storing up all manner of issues further down the line.
Technology is your friend in making bill-paying as frictionless as possible. For regular bills, set up a Direct Debit to save you time and money. If you’re unsure what digital tools your bank has to help you pay your bills, talk to them. It is in their best interest to make sure that you are on top of your funds.
Save for emergencies
In these increasingly uncertain times, it is vital that you put some money aside for unforeseen emergencies. It is in your best interest to have an emergency rainy day fund. Problems will - and do - come up, and often the best way to keep your options open when trouble strikes is to have funds readily available. A good way of doing this with minimal effort is taking 10% of your profit each month and moving it to a separate bank account.
Now is also a prudent time to look at your company's outgoing expenditures and cut back. Instead of travelling for a face-to-face meeting, save time and money (and stay safe) by hosting that meeting online. You can then take those saved expenses and place them in your emergency fund account, away from the money you use for running the day-to-day.
Problems will - and do - come up, and often the best way to keep your options open when trouble strikes is to have funds readily available.
Keep a close eye on payments owed to you
It is very easy when running a small business to get bogged down with the day-to-day operation and not keep track of unpaid customer bills. Sending out an invoice is one thing, but it’s quite another to make sure it has been paid on time and to chase if it hasn’t. There are great tools and software which can automatically send reminders to chase late payments, helping you avoid escalating it to a legal issue. This, in itself, can be a lengthy and expensive process.
You are running a business, not a charity. So make sure you are paid what you have worked or you won’t be in business for very long.
Get help if you need it
Staying afloat can be extremely hard for a small business in any industry - asking for help isn’t a sign of weakness. If you’re struggling to chase payments or keep track of them, it’s better that you get help (either from technology or a trusted adviser), so you can focus on creating value for your customers. Financial worries can put real strain on business owners if they don’t have experience trying to manage it.
“Whatever you do, please don't do it alone,” says Jeremy Frost of Frost Group, a company specialising in business advice for companies struggling. “It can be a frightening time for you but it is possible to solve business problems, especially cash flow issues. If you concentrate too much on the minute details of a problem you miss the big picture.”
Track your financial statements
It is key that you pay close attention to your financial statements. Carefully follow what is going out and what is coming in. If you don't know how to read a financial statement, you can use online guidance to learn as soon as possible. Alternatively, you could employ someone to read it for you if it’s really not one of your strengths or you want to free up some mental processing power to continue to grow your business. Do this by hiring a freelance account manager, rather than bringing a full-time financial team in-house.
It is better to be in control of your finances at all times so that you can react and solve any problems before they escalate. Every company will have one month where their outgoings surpass their incomings but it is up to you to see it, identify why that has happened and make sure it is not a regular occurrence. Don’t assume these issues will just go away.