This is the first in a series of posts that are designed to help business owner’s make better decisions. I truly believe that everything decision you make impacts the company’s success.
Reason #1 Your small business will fail: Not having enough cash to make it through the start-up period, a downturn or to handle a surge in business. This is the number one reason most businesses fail. Cash is king as you’ve quickly learned or are about to. This can be especially tricky if you are starting a new business or have no credit.
What can you do about it?
- Start with a budget and a plan, you need to know what your cash needs are on a weekly, monthly and yearly basis. Does your business generate enough cash to operate or do you need additional funding. Too many entrepreneurs get in way over their heads without a good plan.
- Download my cash flow spreadsheet and use it daily. However, this doesn’t work if you don’t have an up to date check register. You have to know where your bank balance is at all times. And this doesn’t mean checking your on-line balance every day to see what bounced and what didn’t. You need a foolproof system to make sure you track every single dollar coming in or out of the bank account.
- Learn how to leverage cash. Even if you have no credit you can leverage your cash to make it last longer. For example, you may be able to stretch some things out like payroll. If you are paying your employees every week, you may get a reprieve by paying every two weeks. There are lots of strategies you can employ to use your cash wisely and keep moving ahead. See what you can stretch out.
- Consider getting a loan from non-traditional sources. Let’s face it banks aren’t giving out loans like they used to, this means you have to find other funding sources. Look into grants or private loans. Do the research and find the cash you need. There are lots of pitfalls here, when you find a source of funding, talk to an unbiased third-party to get another opinion. Loans or investments from family or friends can seem like your wishes have been answered, but can quickly sour the relationship.
- Stop buying “things” for your business. If something isn’t generating more business or required to service your clients, you do not need it, do not buy it. Be tough with yourself on this point. We all buy a LOT of things we don’t need, because it’s a write off, because it would be cool to have or because someone has convinced us we can’t live without it. Make this rule: Everything over $500 requires a night to sleep on it before purchase. Impulse buys account for much of our wasted money. Be brutal! If you are especially in financial straits stop the spending, period.
- No, don’t pay yourself first. Pay employees and taxes first, pay your vendors second then pay yourself when your company (and you) have earned it. If you don’t have enough cash to cover employees and vendors you don’t have enough cash for you. This is all part of planning your business cash flow.
Manage cash like a beast and account for it all properly. Failure to get this under control can have detrimental consequences to your business and your personal life. Think you’re out of the woods because you got a loan? Now you have to be even more diligent about controlling costs and tracking it all.