When running your own business, your main goal will be to make it a success. From finance to training, to customer service and planning, it is important to know the do’s and don’ts when it comes to successful management. Knowing how to handle your finances is essential so that you can get up and running and make a profit.
Managing your finances is key when it comes to avoiding racking up debt and losing more money than you’re making. If you find yourself in financial difficulty, a short-term loan can help in an emergency. Below, we’ll look at some of the common causes of financial distress within businesses, and how you can avoid them.
Cause: Lack of money management skills
One of the main causes of business finance issues is the lack of money management skills within the company. The likelihood is that if you’re a newly established, small business, you may not have got to grips with how the money management side of the operation works just yet – but this can be detrimental. This could result in spending too much money before you have it, it could mean that you end up in debt, or mean putting money into the wrong elements of the business. So, how do you rectify this?
Remedy: Budgeting and accounting
Making sure that you stick to a clear budget or plan can help your finances to stay on track. You should consider your income and your outgoings, prioritising repayments of any loans you may have, as well as make sure you have money for stock and a little left over the save for emergencies if possible. Getting to know your bank balance, your direct debits, and your repayments each month will help you to grasp how much you have to work with, and what to prioritise.
Cause: No emergency funds
Unexpected events can sneak up on us and can cause problems if we don’t have a plan in place to deal with an emergency. If you don’t plan for the unexpected, it is likely your business will suffer. For example, if you suffer damage due to vandalism or extreme weather, not having the money to carry out repairs means that you wouldn’t be able to operate as you normally would, meaning your overall profit would take a hit.
Remedy: Prioritise savings
You can set up a savings pot and schedule a direct debit to come out of your current business account either weekly or monthly so that you can prioritise your savings. You never know when an emergency might take place, but having funds put to one side can help to alleviate the damage that your business may have suffered as a result.
Cause: Unnecessary spending
If you’re a new business, it can be tempting to spend your money on things you don’t really need, such as extravagant office or shop furniture, high-tech equipment or more stock than is truly necessary. Overspending in areas that are not important can create hefty overheads, as well as a debt before you’ve even started.
Remedy: Sensible cutbacks
Spending sensibly means that you can avoid expensive bills and loans racking up before you’ve started making enough money to pay for them. Only buy items that your business needs to run smoothly – this will free up cash flow, and you will always have the option to upgrade in the future when you have a handle on your income and expenses.
Cause: Poor training
Another factor that may result in financial issues within your company is lack of staff training or poor customer service. For example, if you run a retail business and your staff don’t have the correct training, customers are not going to feel valued – which is detrimental as they are your main source of income! Not training members of staff properly could result in a bad customer experience and word of mouth, meaning that retaining customers and making a profit may become difficult with a bad reputation.
Remedy: Invest in staff
Employing members of staff that are interested in your company and are eager to make it a success is beneficial. You should invest in your staff by providing training programmes and progression opportunities so that they can perform in a way that is valuable to your customers, and to your company as a whole – this means that customer satisfaction rates will increase, and positive word of mouth will mean you gain more customers, resulting in the success of your business.