Having a great product, great sales, and great customer service are all factors in a successful business.
But a financial crisis makes all of this irrelevant.
The smallest financial shock might put your business into a spin.
So, what can you do to guarantee your efforts are not in vain?
What can you do to avoid rocking or perhaps sinking the boat during a financial crisis?
Let’s explore what could be causing these shocks and, more importantly, what you can do to prevent them.
1. Poor Record Keeping and Administration
Business owners are usually not good record or bookkeepers!
People who start businesses are the ones who have great ideas, see a gap in the market, or have the personality to sell anything. They are not people who jump out of bed in the morning and say “Great, it’s a VAT/GST and paperwork day today!”
If you are to keep your business on the straight and narrow then you have to accept that there are going to be days like this; you can’t avoid it.
You must keep records of your sales, your purchases, how much you have, how much raw material or finished goods you hold.
Without these records, you will very quickly lose track of where you are. You won’t know:
• What you have spent your money on
• You won’t know where your cash is going
• You won’t know where all your stock is – has someone stolen it? Who knows?
You are effectively working in the dark and this is not conducive to financial stability.
So what sort of records are we talking about?
Nothing sophisticated. It can be as simple as a book with one page for your income and another for your expenditure.
At least once a month total it’s all up to see how much money you have made (I hope!).
There’s a saying. ‘The people who keep records are the people who break records’ – so true.
2. Not Watching Your Bank Balance
Do you know exactly what your bank balance is today? Why is it important? Because if you are going to write a cheque you must know whether you have the money in your account. If you don’t that nasty Bank Manager may just bounce it.
Obviously, this can have a negative effect on your reputation; your credit will be damaged and you may struggle to get support from your Bank and suppliers in the future.
All because you didn’t check what your balance was.
To avoid this make sure you keep a running total in a cash book of what you have on your account.
Why not sign up for Internet Banking?
These days all the High Street Banks make this facility available, so there is no excuse for losing track of where you stand.
3. Poor Cash and Credit Management
Closely linked to keeping an eye on your Bank balance is how you handle your cash flow.
There are 3 aspects to this.
- Don’t be tempted to keep too much at your home or on your business premises. You could lose it to thieves, fire or flood
- If you are doing ‘business-to-business’ sales then you may be faced with having to sell on credit. If so then be disciplined in chasing up any outstanding payments. You can’t afford to be embarrassed about asking for a cheque. If you have agreed 1 month credit, why wait for 3 months? Chase as hard as you can because remember you have your own debts to pay!
- You may be lucky to have a period of credit granted by the people you buy from. If they give you one month’s credit, then stick to it. If you decide to hold onto your bills before paying you may be faced with a Solicitor’s letter. Don’t ignore the problem and hope the phone calls will go away – they won’t!
4. No Cost Controls
To keep yourself in a strong financial position shop around for purchases you have to make.
Compare prices and specifications.
Have an upper limit beyond which you will not pay.
Always be on the lookout for a good deal.
5. Spending On the Wrong Things
Running your own business can be a very powerful feeling!
You may be tempted to spend on anything but the business – a new car, flash clothes, a new kitchen.
Well, you have to look at the part, don’t you??
During the early years and even when you are established make sure you spend your hard-earned cash on the right things.
The trappings of success may not be right at this stage of your business life.
Your business, in order for it to grow, needs cash. Remove the cash and you remove the lifeblood which keeps your business alive.
You have to be disciplined in your expenditure and ask yourself the question, ‘Will this cost add anything to my business?’.
Don’t act on impulse; go away and think about every large expenditure. If the answer to the question is no, then you should think twice about spending.
6. Depending On a Small Number of Customers
Having a small number of customers is not a problem when everything is going well, but if one or two leave you or fail to pay up on time, then this can cause problems.
If you depend on 3 customers and one of them leaves then you are faced with a 33% reduction in sales.
Unless you can replace him immediately you may not be able to cut your overheads quick enough to avert any crisis.
You cannot afford for your business to be held to ransom. Try and diversify as much as you can. Get out there and get new customers.
The same applies to businesses that rely on only one or two products. A shift in public tastes can leave you high and dry with unsold stock and no business!
Financial problems can usually be avoided by taking a step back from the business and thinking about what can go wrong. Once you know that, then you can take actions to put preventative measures in place before it’s too late.