Launching a business is but one step of the journey towards success. However, unforeseen circumstances could lead to the dreaded business failure. The pandemic has shown that not even large businesses with their huge resources are safe from sudden catastrophe.
The reality is even bleaker for small businesses. The Bureau of Labor Statistics revealed that 20% of small businesses that launch in a given year could fail within that same period. Even those that make it to their second year are not out of the woods yet – the Bureau says that 30% of small businesses could close shop within just 2 years!
Proprietors must leave no stone unturned in making sure their businesses remain in good financial health. No small business owner can afford to be reactive, not in this fast-changing world. They must preempt problems even before they arrive. This they can do by following the below five tips to sustain their business’ financial health.
Stay On Top of Finances
Cash flow problems did everyone in when COVID-19 began. Nationwide and global lockdowns have removed nearly all of the revenue sources of business both small and large. As a result, nearly 66,000 small companies have folded in just three months after the onset of the pandemic last year.
Every small business owner has to learn how to monitor their business’ cash flows and working capital. They can hire an accountant since assembling financial statements can be difficult, but they need to stay informed. They should also purchase business dashboards if they can afford them.
The goal is to know how the business is doing, whether the business is well prepared against financial meltdowns or not, and what can be done to remedy possible cash flow problems. In other words, the aim is to be more informed and be more prepared against potential challenges.
Make Cash Flow Lean
Every proprietor must make positive cash flow a goal. They must make sure that most of their cash flow remains within the business with only a small percentage going out to expenses. What they should be doing is cutting or even eliminating as many of their expenses as possible.
There are many ways to cut expenses, and these include:
– Eliminating non-essential expenditures
– Renegotiating lease terms
– Refinance or consolidate high-interest loans
– Renegotiating trade credit with vendors or suppliers
Business owners should also avoid paying in cash as much as possible. Purchasing on credit extends the term and reduces the associated expense.
Keep a Positive Credit Score
A positive credit score ensures access to a vital lifeline for the business. As mentioned earlier, entrepreneurs shouldn’t dip into their business’ cash reserves as much as possible. However, it can become inevitable if the business experiences problems in cash flow.
Fortunately, several forms of financing exist to provide assistance to businesses in these situations. However, most of them require a high credit score with the business credit bureaus. Thus, entrepreneurs must keep up with their debt repayments as much as they can.
On the other hand, defaulting on a loan could cause credit scores to plummet and restrict the company’s access to much-needed financing.
Grow Your Brand Personality
The brand personality helps businesses reach out to their target audience. Without one, a business will just be an anonymous entity in its niche market. Small businesses can rarely afford to hire big-name endorsers, but their entrepreneurs have other choices.
They can, for example, utilize a blog to connect with their audience. Posts need to be genuine as if they’re written by a real person. Potential customers want to see somebody that they can relate with or someone that they can trust to provide them with what they need. Informative blog posts combined with an effective social media campaign can help give small businesses a reputation boost.
Learn From Competitors’ Mistakes
Mistakes are inevitable. Businessmen should always treat mistakes as lessons to be learned. However, it’s also best for entrepreneurs to learn from others’ mistakes than make some of their own. Small business owners should make it a point to conduct market intelligence or to analyze what their competitors are doing and where they went wrong.
There are many ways to conduct competitor analysis. Social media is a great resource to use, for example. Entrepreneurs can conduct various surveys and research on Facebook to gauge what the customers are saying and compare the data with what their competitors are visibly doing.
They could also network during trade shows, expos, and conferences. These events are perfect for small business owners looking to see what new offers their competitors are making.
Business owners can ensure their enterprise’s survival by simply keeping their cash flow positive and their credit scores high. They should also always brush up on how their company is doing financially, and if there are problems that need to be remedied.
They should also build a positive reputation as a trustworthy partner and a reliable member of the community. Last but not least, entrepreneurs must also take lessons from their own mistakes and their competitors’ mistakes as well.