When running a business, there’s a long list of issues and challenges to be faced and dealt with. You have to worry about maintaining your integrity, beating your competition, managing staff, and risk management, just to name a few.
Naturally, the most important thing in business is your cash report – after all, this is why you launched the business in the first place. Ideally, you actually enjoy what you do; but without the right financial results, you’re not too likely to keep your shop open.
Here are a few common money-related hurdles you’ll come across as an entrepreneur.
Initial Financing
If you read online articles about finding investors to give you an initial financial boost, you might be under the impression that this is a piece of cake, with money just lying around waiting to be picked up by anyone eager to start a business. In truth, it’s very difficult to convince someone to give you a hand with the so-called “seed money.” However, if you really believe in your idea, you have several available options.
For instance, venture capital companies and angel investors will help you develop your business with their money, the price being a certain percentage of the company’s ownership. Crowdfunding is also popular, but it’s hard to collect enough money this way. Taking out loans is also reasonable if you firmly believe that your plan will work and that you can pay the money back. Nevertheless, taking a loan may be more complicated than you think.
Bad Credit
Taking a business credit isn’t too difficult for a fully developed, successful business. However, when it comes to small, up-and-coming businesses, banks aren’t usually too eager to give out business loans to them. In this case, you’ll have to try to get a personal loan, which might be a bit of a problem if your credit score is bad. Poor credit is usually due to bad financial habits or because you already took out several loans you haven’t paid back in a regular way.
If this is the case, you should turn to loan companies that, unlike banks, give you the possibility of taking bad credit loans, which is often a business-saving opportunity because investors and potential partners, as you can imagine, don’t really have a thing for bad credit rating.
Other than that, minding your finances more carefully should be an absolute must. That’s where the next challenge might be an obstacle.
Maintaining Positive Cash Flow
One of the most important things to remember when analyzing your financial report is that your large profit at the end of the year doesn’t mean much if you don’t have the actual money on your account. The fact that you seem to be doing fine because you’ve sold a lot of goods may amount to nothing if you have a lot of incoming payments in the following months, but no cash in your hands. This can make your company illiquid, meaning that your company isn’t able to pay current dues and liabilities at a certain point, although you might have loads of goods stocked and a bunch of accounts receivable that can’t be turned into cash right away.
There are several solutions to this, and among the most popular nowadays is the effective recurring payment system that is based on the idea of payments being repeated periodically, for instance, once a month or once a year—this is a decent way of stabilizing your cash flow and making it more predictable and a good way of putting an end to all the late and irregular payers, that are also jeopardizing positive cash flow.
Financial Illiteracy
A lot of newcomer entrepreneurs get carried away as soon as they start doing well, without actually second-guessing their competence and reason. It can be dangerous to get too excited and make huge plans and big investments right away. Therefore, it’s very useful to have someone experienced by your side to help you with money management and advise you on big business decisions.
Young and inexperienced entrepreneurs are inclined to take big risks, and this doesn’t always have a happy ending. You should also strive to improve your financial literacy—try enrolling in useful courses, following influential financial blogs and some financial experts on Twitter, or put finance books on your birthday wishlist. The more you know, the better you will be at handling your finances.
And this might be the moral of the whole story: to avoid financial problems, especially at the beginning of your business endeavour, you have to be careful, methodical, and you shouldn’t rush things. Whatever you think, success doesn’t come overnight, but is instead a combination of hard work, good luck, and the ability to make the right decisions at the right time.