Why Some Small Businesses Fail

It’s startling to realize that over eighty percent of business failures stem from cash flow problems. That’s a disturbing number of shattered dreams and fortunes. This only goes to show that the ability to manage any cash flow situation, from normal accounting procedures to a sudden emergency, is a crucial skill that business owners ignore at their own peril.

 

Here are some of the ways financial and business experts recommend managing and growing a company’s cash flow:

 

Know the break even point

 

.Most business owners know their break even point by heart. It’s central to keeping things focused and on track, acting like a gyroscope when things become confused or stormy. Businesses that keep this in mind will have many fewer cash flow problems. Business owners who don’t really know their break even point would do well to take an online accounting course to learn how to do so, or hire an accounting specialist to help make it clear.

Make cash flow management a priority

Whatever the subsidiary goals might be of a business — the main goal is always going to be to turn a profit. Without profit a business becomes a charity — and that’s a whole ‘nother ball game. No business can become or remain profitable if it ignores the importance of cash flow and relegates it to the basement. Solid cash flow is the only sure foundation for a successful business venture.

Get it put down on paper, digitally speaking

It should be a no-brainer that a complete and accurate record of all monies coming in and going out should be kept, and kept up to date, at all times. Yet there are business owners who shirk this responsibility and would rather fly by the seat of their pants. Not. A. Good. Idea. First of all, both the IRS and the local tax agencies will come down with huge fines. And second, When cash flow becomes an issue there isn’t a lending institution in its right mind that will work with a business that doesn’t have its records kept straight. For business people who just can’t do it themselves, use an online accounting template.

Motivate customers to pay quicker

The real secret to business success is to always have more money coming in than is going out. Do whatever it takes to motivate customers to pay their bills on time, or even earlier. Give them a slight discount for early payment, or just offer them a hand woven shopping bag — anything that will get them into the habit of ponying up the cash a few days earlier than usual. In the long run, this is like money in the bank — because there will be less need for loans of any kind.

And the other side of the coin . . .

Work hard at extending payable dates to the very last moment without being dinged with late fees. That way there’s more money available in the bank for a longer period of time. It may sound hypocritical, after what was stated above — but business is business, and every angle needs to be worked.

Adam Torkildson