Eight out of ten businesses that get incorporated in United States fail in the first three years of their development. There are numerous reasons for this to happen, which range from the lack of unique value proposition they are offering to bad choice of location for service and retail enterprises. Another very important reason that drives businesses to bankruptcy is bad accounting. This usually happens when entrepreneurs who are not economists by profession choose to run their company’s finances without learning basic financial rules and terms and without consulting experts. In this article we are going to sum up financial tips and tricks used by successful SMB entrepreneurs.
Overestimate Your Expenses
Many small businesses work on project basis. This can be a huge trap from entrepreneurs who think they can predict project’s finances, by relying on previous project figures. Every project is different and each one should have a unique budgeting plan.
Successful accountants always overestimate project expenses, because every project comes with its own one-time cost that wasn’t anticipated. That’s why budgeting slightly above anticipated costs can save you from later capital and surety claims.
Hire Professionals for Debt Collection
Business experts usually advise us to avoid bad debt at all cost, but sometimes it is hard to do that, especially when you are dealing with customers and business partners you don’t know much about. Usual debt collection techniques take both time and money and cases often end up in court, which makes the whole process even more tiresome and expensive.
That’s why you should always ask for debt collection agency’s aid when you are stuck with bad debtors. If after a first few warnings you don’t receive any payments, it is definitely the right time to hire some professional help. Of course this way you will receive only one part of the sum, but if you continue debt collection process by yourself, you will lose even higher amounts of debt sum and lots of valuable time you can invest in further development of your company.
Don’t Procrastinate Accounting Work
Most small business entrepreneurs who aren’t familiar with accounting tend to delay these tasks, until their creditors, suppliers and government agencies jump on their back. Procrastinating accounting work, doesn’t make it go away. If you keep delaying your obligations, one day they will hit you hard and you will need to fight with huge accounting mess, pay long list of overdue payments with interest and settle your score with IRS and various other government agencies.
Determine Slower Cash Flow Periods
Most small businesses have seasonal cash flow, which means that they receive much more orders in certain periods of the year, while during some other months they work slower. During these slow months cash flow drastically decreases, and that is why these types of small business enterprises often need a financial cushion that will help them to get through.
Another important thing is to scale sales cycles, because if you are running business-to-business company with sales cycles that last for several weeks, months or years, you will need extra funds to buy raw materials, pay your workers and keep your company operational.
Don’t Devalue Human Capital
One of the biggest mistakes entrepreneur can make is devaluing human capital and acting as a nitty-gritty scrooge. If you want to cut your business costs by firing employees and working everything by yourself, you will end up working more than 80 a week and earning significantly smaller amounts of money, which will leave you with similar monthly savings.
In entrepreneurship we need to learn from more experienced and successful players. That is why you need to openly ask for advice and counseling in order to solve problems that come up. This is especially important for running company finances, because neglecting this sector can easily lead your company to bankruptcy.