Running a small business is already a tough task to fulfill. Apart from the challenges of running the company itself, you will also face many financial issues along the way. As a business owner, you need to know what these problems are and how to deal with them.
Keep in mind that these financial challenges don’t only refer to finding ways to fund your startup, but it’s also about finding a way to secure cash flow. According to recent research, 82 percent of startup businesses fail due to cash flow problems. That’s why you should do your best not to fail your business financially. Otherwise, it’s game over for you and your business.
Here’s a list of the most common financial problems that every startup business faces to give you a heads up. In addition, I will also mention a few tips on how to deal with these problems and make sure your business stays afloat.
Timely Bill Payment
It’s essential to understand how important timely billing is for your business to keep running. Sure, missing a bill payment or two may not sound too game-breaking. But what you need to know is that every missed payment is considered nonpayment. In addition, it can also affect your business’ credit score, which is something you should avoid at all times.
Trying your best to make regular payments isn’t enough. If you find that you keep missing out on payments, you need to change your billing strategy. You can look for a way to make the entire process as fluid as possible. For instance, you could incorporate an electronic payment system since it allows you to save time and resources. In addition, you will also make sure that you are getting paid on time.
To solve this problem, you’ll have three options to choose from:
- Pay your bills via your bank account.
- Pay your bills through the biller’s website.
- Choose to hire a third-party bill payment service.
Every option is viable and will prove helpful in improving your bill payment problem. So, consider exploring these three possibilities and choose the one that works best for you.
Creating an Emergency Savings Account
Another challenge to any startup business’s finances is creating an emergency savings account. Like you, your business also needs an emergency fund that will help keep it afloat if you encounter a significant financial problem. In addition, having an emergency fund means you can still recover even if your business takes a big hit financially. So, consider all the different ways you can create one as soon as possible.
One effective way you can start building your emergency fund is by storing away your tax returns or any excess income that you can afford to save. An emergency fund should be able to cover a significant period of business operations in case your business starts losing money. Learn how to calculate a runway of six months to a full year and aim for that figure. These periods will be enough for you to recover and start earning money again.
The best way to create an emergency savings account is to look at your business’s expenses. From there, identify the ones that you can cut or, at the very least, reduce. For example, instead of an expensive business trip, opt for a video conference with your employees or business partners.
If you’re planning a company outing, choose the least expensive one that will still guarantee your staff will still have a great time. You can also consider reducing your company’s daily spending as much as possible. From there, store all of your excess money and start building your emergency savings account.
Debt Collection System
Running a business also means dealing with debt. That’s why you should also pay close attention to your customers’ debts. These days, consumers have a lot on their minds. So, forgetting something as paying bills is pretty common and can happen to anyone. That’s why you must automate your billing process. That way, it will be easier for your customers to remember that they still owe your company money.
An effective way to remind your customers about their debt is by using an invoicing system like ReliaBills. ReliaBills offers a comprehensive way of invoicing and billing customers. That way, you will get paid on time or even earlier. All you need to do is create a free account, and you can now access all of its useful invoicing features. From creating your unique invoice to scheduling it for each of your customers, they offer an effective way of reminding your customers to pay you. You’ll even get notifications via email when your customers have received their invoices and have made payment.
Another effective option when dealing with debt is to implement a direct debit program. This system will automatically send reminders to your customers before automatically deducting their credit cards. In addition, this process will encourage your customers to check if they have money available on their accounts to make payments.
Should their credit cards fail to make payment, you can implement automatic rebilling. These features will make the entire debt collection process easier and hassle-free. At the same time, it also encourages lesser debt since you’re informing your customers ahead of time about the bill that they owe you.
It’s important to reduce and control debt in your company. Remember that you’re running a business, not a charity foundation. Never doubt or feel bad about finding different ways to collect what – legally – belongs to you. If your clients owe you money, make sure you let them know and don’t accept nonpayment as an option.
Finally, to ensure that you stay on track of your finances, always be up-to-date with your financial statements. Your financial statement should involve:
- Your cash flow statement
- An income statement
- A statement of shareholders’ equity
- A balance sheet
Unless you know how to analyze a part of the financial statement, you must learn it as soon as possible.
If learning how to read your financial statement is too much of a burden, you can opt to outsource your finances by hiring an accountant to manage your financial statements and other similar tasks. Outsourcing is a popular option among startup business owners since they usually can’t afford a full-time, in-house financial team.
So, the bottom line is that you shouldn’t do everything on your own. If you have too many things on your plate to include learning how to handle your financial statement, you can always outsource it to someone who can. It’s a better and much cheaper option in the long run.
Always be proactive in terms of implementing suitable financial systems and pay close attention to your finances. That way, you react and take action as soon as you notice an issue within your finances.
About the Author:
Ossian Rey is a Digital Marketing Consultant at ReliaBills, a software that helps businesses get paid on time. Loves milk and small chat.