Quote of the Week:"Don't worry about failure, you only have to be right once."~ Drew Houston
When small businesses fail there are often two things blamed, tough economic times and cash flow problems. While you have no control of the former, you have significant influence on the latter.
Cash, not customers, is the lifelineof any business. You cannot survive if you have many customers who are not paying you on time. You need cash to continue operating and also to enable you to grow. So, what are some of the best practices that can help you stay afloat?
1. Have a Strategy
You need to have a financial plan from the word go. Make finances a priority from the start and determine how often you will be reviewing your accounts. Learn about the best practices in your field and determine the accounting software necessary for your business. Also, find out the ideal payroll software for your business. Organize your accounting department since finances will get complicated in time and the sooner you start the better for your business. If you don’t have a plan, start one immediately.
2. Invest in The Right Tools and Personnel
There is no point of getting cutting edge accounting software and other financial tools if nobody in your team knows how to use them. Invest in professionals too.If you cannot afford one at the time, invest in yourself, take relevant courses and learn but don’t overspend while you are at it.
3. Get Separate Accounts
Most entrepreneurs, especially sole proprietors, do not separate their personal account from their business account. Do not mix your personal finances with those of the business; it is prudent to operate separate accounts for this purpose. Similarly, learn to distinguish bank balancefrom profit so that you can avoid the mistake of drawing from working capital and eventually putting your business on the path to stagnation and failure.
4. Track Expenses & Income
Track expenses, especially small ones, to stay on top of your financial situation and avoid any potential leaks. Keep all the receipts and only use dedicated business credit/debit cards and bank account(s). This will not only help you prepare your books but will also help you file your taxes.
Also, track your invoices and automate them if you can. Always insist on payment first but if that is not possible due to the nature of business, insist on a deposit.Again, you will not survive without cash. Avoid credit as much as is practically possible.
Budgeting is as important to a business as it is to an individual, perhaps even more.Make quartely and annual budget projections and cash flow estimates. These two will help you stay on top of your finances. They are important tools for monitoring and reviewing your perfomance. With periodic budget and cash flow estimates, you will know where you stand at any given period. Perhaps most importantlly, you will be able to tell when you are headed in the wrong direction and be able to take corrective measures in time.