Issues to do with finance present the most difficult challenges that entrepreneurs have to crack. Small businesses are especially hard hit as they need capital to kick off their business and scale. Whenever you are starting a new company, it is important to educate yourself and get as much information as you can on the topic of financing. Prior preparedness helps you to avoid potential financial problems or know how to deal with them when they arise. Below are some common financial challenges and how to overcome them.
- Debt and a weak credit rating
If you have taken several business loans to pursue certain ventures, you may have already ended up in a series of debts. Worse off, if the ventures you got into failed to take off as quickly as you had anticipated or flopped completely, you are still left with the burden of repaying the debt. When you find yourself in such a situation, you can it is best to think of how you can manage all your debt as one. Debt consolidation is popular because it comes with so many benefits; including a lower rate of interest, ease of handling payments, and a better credit rating.
Consider taking a loan from a source such as Small Business Administration (SBA) or using security backed loans. You should also check the terms of the loan carefully to ensure the interest rate is the lowest you can get and the terms of payment are suitable for you. You may want to take advantage of incentives for early payment if any.
- Lack of enough working capital
Your business may also suffer from cash flow problems causing you to make bank overdrafts to try and cover-up. You can solve a liquidity problem by planning to save for your expenses 6 months in advance, and have some cash saved in a current account to cater for such costs. Alternatively, you can figure out places where you can cut your costs by 20% and use the extra money to build working capital.
- Inconsistent cash flow
If you are running a business based on projects, your cash flow situation may be shaky depending on when you have made sales or not. This is especially true when your business is young, and you are yet to establish a pool of loyal customers. Such a business requires having a qualified and experienced business development team that can successfully bring in new high-value customers to help keep your business afloat. Another strategy is to identify a product line where you can get consistent customers.
Otherwise, if your business is not project-based, you should pay extra attention to loyal customers who are contributing significantly to your business. Work on recovering debts from customers who pay late or fail to pay, or create stricter terms and conditions of payment to save your cash flow situation.
- Excessive spending on advertisements
Marketing is and should be a huge part of every business. Many businesses may be spending too much money on making their business visible to as many people as possible, without a proper strategy to determine how the adverts are growing their business. Problems include putting up untargeted ads and outsourcing to an expensive marketing team. The best thing to do is to learn how to do it yourself so that you can be more frugal with your ad spending.
- Poor accounting and budgeting
Proper accounting and budgeting are the bedrocks of sound financial management. You need to learn how to account for the smallest revenues and expenditures. There are numerous courses on accounting software today. It is important to be hands-on with our finances even if you choose to hire someone so that you are not making losses that you cannot account for or you do not understand where your money is going. Most importantly, cut on unnecessary expenditures. New businesses should work within their budget and not invest in expensive staff in a bid to fit in.
Your first goal as a business should be to have enough cash flow at any given time. That may mean looking for places where you can cut costs, saving money for recurring expenses months in advance, and having stricter rules of payment for customers.
