5 Financial Challenges and How To Overcome Them in 2016
A new year is a great opportunity to stop, think, set new goals and plan ahead. Every year comes with opportunities and challenges. Financial challenges are some of the most painful ones entrepreneurs have to deal with.
The loss of a big client or a slowdown in the economy can drive some companies out of business. Making a list of financial challenges and staying close to them can help a small business survive even in times of economic instability.
Here are five financial challenges, and ways to overcome them in 2016:
#1 Don’t have enough working capital
A lot of salaried people live pay check to pay check, similarly businesses too can get into this habit. They’re always waiting for that next big client to pay up. Sometimes, they have overdraft arrangements with their banks that they utilize to pay off salaries or other vendor payments. However, this is something business owners need to be careful about. It’s important to have at least 6 months expenses as working capital which gives the entrepreneur enough breathing space to focus on acquiring new customers and building products.
The best way to avoid an inadequate working capital situation is to figure out a way to cut your costs by 20% and put that aside to build up working capital. If you’re a start-up that is yet to make profits, make sure you are adequately financed.
#2 Cash flow is not consistent
If you’re a project based business, then your cash flow depends on consistent flow of projects and it’s natural not to have consistent sales. In this case, it’s important to have a good business development team that is frequently looking for new projects, or identify a product line that can give you recurring customers.
Non-project based businesses need to start focusing on recurring customers who pay well and on time. If you have recurring customers and they are not paying on time, you need to start renegotiating your payment terms; or start looking for customers with better payment terms.
#3 Paying bills late most of the time
It’s important to identify why this is happening. Is it because you haven’t established a consistent payment cycle? Or, is it because you don’t have enough cash? If it’s a cash flow problem, look at the paragraph above for solutions. Otherwise, it’s important to make a monthly budget and follow it. Set aside a specific day of the week just to go through accounts payables and sign checks.
Tom Caesar, MD of Positive Lending Solutions says, “Setting up a budget is one thing, but living by that budget is the most difficult part. Be disciplined and you will end up years ahead.”
#4 Book-keeping is not organized
Small business owners are usually bad record keepers. And they consider this to be one of the most boring tasks in a business. Hiring an organized book-keeper can save you a lot of time. When I started in business in 2005, a book-keeper was one of my first hires.
If you can’t afford one, find someone on your team who can take on this responsibility. A good administrative assistant can sometimes do an effective job at this.
#5 Unable to project revenues and expenses accurately
If your business is fairly young or dynamic (that is changing everyday), it’s hard to predict revenues. But expenses can be predicted because most of them usually remain the same month on month, except for some unforeseen expenses. It again depends on the nature of business.
More importantly, the mindset of the entrepreneur is very important here. If you’re making impulsive decisions rather than a thoughtful and informed choice, then there’s a probability of expenses going off track. It’s important to think strategic and put a budget in place that acts as a guideline to decision making.
Managing finances is very important in business, and it all starts with developing good habits. Be financially prudent and track your finances to stay ahead of the game.
Vinil Ramdev is an entrepreneur, business writer and marketer. He graduated with a Bachelors degree in Marketing in 2004. Since then, Vinil has been involved in starting and growing several businesses predominantly in retail, marketing, media, advertising and on the internet. His skill for seeing the big picture, and identifying trends and patterns have made him a sort-after consultant for companies who want to grow their business and make their products more discoverable.