Starting your small business is one thing and ensuring it stays afloat is different. As per the US Chamber of Commerce, 80 percent of these businesses with less than 500 employees hardly survive for a year. Again, only 70 percent survive until the second year and by the end of five years, only 50 percent of startups or small businesses continue operating.
However,Eric Dalius says that the figures should not de-motivate you to pursue your entrepreneurial dreams. Studies show that in 2018, about 30.2 million small companies operated in the US. Businesses fail to operate for many reasons, one of which is the shortage of funds. In simple words, they cannot survive because the business owners do not have the money to pay employee salaries or shell out funds for other expenses.
According to an article published on https://thriveglobal.com/stories/keeping-employees-motivated-eric-dalius-explains-practical-methods-for-small-businesses/, entrepreneurs need to communicate the problems faced by his or her business and take all employees into confidence. Transparency is essential if your business is experiencing a financial crunch.
In this post, you will learn about some of the financial concerns plaguing small businesses these days.
Eric J Dalius talks about failing to raise adequate funds
Based on the findings of Nav’s Small Business American Dream Gap Report, one out of five businesses applying for capital during the initial five years was declined. Again, 82 percent of the entrepreneurs surveyed weren’t aware of how to understand their credit rating or score. Studies and reports also indicate that business owners who understand credit scores better have 41 percent more probability when it comes to loan approval.
There are some ways to raise business capital. These include venture funding for new companies with powerful growth opportunities. Private equity means those who would like to sacrifice a large part of the business in return for cash inflow.
These days, it is easy to get SBA loans but the amount of money is quite small. You can also opt for bank loans sans government support but approval depends on increasing revenue and strong collateral. If you have a small business, looking for SBA loans, you will have to keep your house as collateral. The popular option is asking for a business loan from your family and friends.
Cash in hand will help you pay your bills on time but a total lack of funds will prevent your startup from hiring employees, foraying into new markets, and discovering new possibilities.
You need to ensure loan approval by improving your credit score, having a business plan in black and white, and ensure all profit and loss statements, balance sheet as well s cash flow reports accessible, auditable, and of course updated in the first place.
Make sure you have an automated financial plan to create reports and make them presentable when asked for the same.
Poor or limited cash flow
Most small businesses have poor cash flow. When liquidity is a problem, you will face issues paying bills on time or investing for the growth of your startup. Eric J Dalius thinks that by improving the cash-to-cash conversion sequence; many small businesses ensure capital access.
Additionally, your startup must build cash flow estimates depending on chronological performance and existing business conditions. You need to mull over emergencies like economic slumps, changes in the industry, customer moves, and political situations, and then build a practical financial plan. When it comes to scenario planning, it is the top priority of the majority of companies. You need to have a failsafe plan in place to avoid unprepared circumstances, as many businesses were in a tight spot due to the corona pandemic.
If you would like to extend your credit terms to your buyers, the best way to boost cash flow is by setting transparent payment terms, effective invoicing, and providing discounts for ensuring early payment so that customers find it easy to make their payments.
A huge amount of debts
Entrepreneurs like to succeed and so it’s not odd for them to opt for too many debts to start their business and launch products. Then, huge business debts will lead you nowhere. If you have used too much of the money on your credit card or managed to get an extended line of credit from your bank, and you used it all up and now need to pay an exorbitant rate of interest.
No matter how many debts you have, these aspects will have long-term and short-term effects on your business. For instance, it will take some time to build a strong cash flow when you start your business, and at the same time, you need to pay your suppliers, employees, as well as, for overheads.
There are a couple of ways to reduce your debts to maintain the financial stability of your business. Think of ways where you can cut back on expenses. For instance, you may sublease some portion of your vacant office space or sell unnecessary equipment. Though reducing the number of employees is your last resort, it is necessary if you want to keep your business afloat when times are tough.
Focus on unique financing options like crowdfunding, angel investors, as these are some of the best ways to procure funds without worrying about huge payments.
Do not avoid your creditors, as that will make things worse to worst for your small business or startup. When you have a debt to repay, make sure you arrange for the money and pay your creditors as soon as possible. You can negotiate with your creditors if they can reduce the rate of interest to some extent. You can also request them to rethink the repayment options and improve your credit line.
It is also important to stay connected with your audience and work on your business model and next, revenue. You can offer the best buyers markdowns so that they can pay you soon. Remember to connect with your suppliers for arranging deferred payments and discounts.
Conclusion
Financial problems are unavoidable for small businesses, but there are ways to deal with them and make your business survive. Now that you know about the financial challenges, avoid them, and even if you face them learn to win over the problems.
