Starting a small business is not as easy as it sounds. And one of the most important things to take care of is managing money. Every business goes through some business problems. These are inevitable. But these can be the major reason for the downfall of your business if you didn’t handle them right. And just as in life, sometimes you have to make painful decisions in your business which are hard now, but will be good for you in the long run. So, here are some of the ways you can solve these business problems when you’re just getting started in your business venture.
This article is about how to not make the mistakes that most business owners are known to make. Specifically, focusing on managing money in business and starting a small business the right way. These are some of the financial and non-financial issues that you might find yourself in. Every problem has a solution, you just need to come at it from the right angle. The art of cutting down the cost of business, and keeping a clean record of everything is one of the important things that you should always keep in mind. And, here’s how you actually do that.
Managing money in business (Financial issues)
Money often causes a lot of problems in a new business. And most people are not good at managing money, so the job becomes even harder. The most common problems faced by new business owners are
- Not having enough capital
- Not being able to manage the cash properly.
- Poor record-keeping and control
- Improper pricing of the products
- Uncontrolled growth
Now, you may or may not be able to understand the depth of things mentioned here. But one of the most overrated mistakes made in the business world is, starting a business with insufficient capital. They burn out on their resources and their business fails. And, more often then not, these people are not good at managing money that they have. They end up spending it at the wrong things and the venture dies.
Not being able to keep a record in a professional and clean manner is another thing that people take lightly. Most people are not able to judge how much they should charge for the services and goods they provide. And as strange as it may sound if you’re growing at an uncontrollably fast pace, it can be really dangerous. It’s not as good as it sounds, your business needs to grow at a specific pace, so, you’re able to handle that growth.
Growth and scaling issues (Non-financial issues)
Managing money is not the only thing that you need to take care of in a business, there are non- financial factors too, and these are just as important.
- Sloppy and poor marketing
- Poor quality
- Poor location choice
Too many people start a business without having proper funding or financing. They are not able to determine where the money will be spent due to lack of experience, and even if you have some experience, it needs careful planning and realistic estimations. A few things to pay special attention to are
- Equipment (whether you choose to rent or buy)
- Employee salaries
- Buying inventory
- Right advertisement
Finding customers and getting paid is not as simple as it sounds in the theory. A lot of things need to be considered before you’re able to make that estimate. A majority of small business owners have the tendency to overestimate their cash inflows and underestimate their cash outflows. So be realistic and carefully map out expected cash inflows and outflows for at least the first six months of your business. If you have some extra cash saved for an emergency, that’s a good thing too. Finding out today that you need cash tomorrow is a smart decision, not having enough cash is a bad idea.
Even if you thought about the above-mentioned things, it’s not an easy job to map out all the estimates. The thing is, you need to bear the cost of business beforehand. You get paid last. But you need to pay your rent, your employees, for your equipment and everything else, regardless of if you’re making money. Even if you face a loss, you will still have to bear these costs. So, take your time, and be realistic with your goals and how to achieve them. Dreaming big and being smart are two different things, and you need them both.
Being on the safe side of managing money
There is no way to ensure that you will not fail in a business, but you can control some of the factors to reduce your risk of failure. This is where a cash flow forecast comes in. Basically, budgeting how much money you will need for things and how to make realistic estimates beforehand.
Identify all fixed and variable costs carefully. Let’s take the example of a restaurant, to understand the concept better. So, the fixed costs here would be things like, rent, equipment, utility, insurance, advertisement, etc. And the variable cost would be food, packaging, labor, etc.
Now the hard part is, to determine how many customers can we realistically expect? This will depend on your competition, the population in the area, your quality, and surveying potential customers. Forecast cash flows are devised out by cash on hand + expected cash inflows – expected cash outflows.
- Obligations to others
- Obligations to you
You need to safeguard your cash. A great way to do that is to be very clear on who you owe and who owes you. The best way to do that is to keep really clean records. There are things that you should keep in mind like
- How will you document that your cash outflows are a legitimate business expense?
- If you’re in a business that has inventory for resale, how will you know how much to have on hand?
- How would you know how many hours your employees have worked?
So, it’s more complicated than it sounds. And there’s no shortcut to getting this right. You have to grind it out until you get the hang of it. It varies from business to business, and you should have a system in check to safeguard your cash.
Record keeping and being in control
Keeping records is something that you should start doing early on. Keep them clean and mess-free. Accurate information will help you run your business better and in managing money. There are things that you should never bypass while starting a business. Bankers and investors will need accurate information before financing. Also, if you ever felt like selling your business at some point in the future. Clean and effective records can help you get the top buck for it. And another important thing is, accurate information will help make sure you pay the right amount of taxes.
You should procedures in place to ensure that accounting information is accurate and reliable and that safeguard your assets and records. Records help you retarget your customers again and keep them coming back to you.
How much to charge?
One of the most common dilemmas that business people find themselves in is how much to actually charge for their products or services? Charge too much and you lose customers, charge too little and you lose money. The biggest mistake new business owners make in product pricing is not considering and covering all of their costs when entering a market. Consider all the costs. Ask yourself the following questions
- Can I reduce any of my fixed costs and by how much?
- Can I reduce any of my variable costs and by how much?
- Is there any way I can increase the number of orders or customers per month?
- How high can I raise my price before it is worth it for my customers to travel elsewhere?
Managing money and finances literally determines to success or failure of your business. Also, be really careful with inventory. Uncontrollable growth is bad for your business as you won’t have the resources to keep up with the demand and soon the entire thing will collapse. Growth requires cash and if you’re growing at a higher pace than you can handle, you’ll run out of money and your venture will fail.
So, to conclude, starting a business and staying in it costs money and time and a lot of effort. I hope you learned something today, implement these simple things in your business and you’ll know why they are so important. If there’s something that you’d like to add, be sure to mention it in the comments below. The thing is, a lot of people quit too early. Obviously, there will be some problems and it won’t always be easy. But your venture serves people in any way, and you really enjoy being a part of it, on a long enough timeline you can not lose. So, hang in there, and don’t lose hope.