The world we live in is fast-paced, and businesses rise and fall in an instant. In 1998, Nokia was the biggest mobile phone brand in 1998 and in 2003, they launched the Nokia 1100, which was the best-selling mobile phone of all time. However, in 2007, the iPhone arrived and in a mere six years, the market value of Nokia declined by 90%. If a company of that size can fold so easily, how can a small business make it over the long-haul?
One can imagine how important cash flow is when a company the size of Nokia bit the dust. Although their downfall wasn’t directly related to cash flow, eventually they had to cut their losses and break even. Establishing your break-even point is one of the most important things you can do as an entrepreneur.
It is a guide that you can follow to determine if your company’s growth is out of proportion or not. You can imagine if your revenue falls 10% short of your expenses for a couple of months. Before you know it, you will be closing the doors to your business.
Always work toward your breakeven point before you attempt to grow your business. Once you start showing profits, you can look to expand gradually.
Build a cash reserve
Along with establishing your break-even point, building up a cash reserve is just as important. As a small business, you won’t have the luxury of falling back on your massive profits all the time. Plan and work closely guided by a good business report based on which your business started.
Based on the business report, make an assessment of each and every business expense, including any hidden expenses, or an unforeseen business contingency that might arise in the near future. Cash is the lifeline of every business and you can’t afford to falter on this because of lack of planning.
Having a decent cash reserve will get you out of the woods during the slow months. As a general rule, building a reserve that can carry your company for four months is ideal. The reality you need to face is that you are bound to have shortfalls during your early years and months.
Rarely does a company start off without a hitch. You need to build trust and a name for your company before your revenue stabilizes. When you see that your revenue is stable, you can start looking at expansion.
Don’t let debtors slide
Being a small business that’s keen to keep your clients, you will often be tempted to let your debtors slide on their payments. You are not doing anyone any favors, especially your cash flow.
You will be dependent on every penny you make and letting your debtors off the hook, or allowing them to pay late, makes it impossible for you to grow your company.
However, if you aren’t the type of person who can hound people for money, get someone who can. If you can’t collect money on the day of delivery, you should try and not go over 30 days. Also, understand the difference between a good debt and bad debt and act wisely.
People in the business world are often on the lookout for bargains or service without having to pay for it. However, you won’t be able to do your business if you don’t have money. Setting incentives for your clients for paying at the point of sale or setting up contractual financing plans is one way in which you will get your money on time.
You are at risk of losing revenue and also credibility if you cannot pay your expenses. Taking your clients to court is also not a win. You’ll never get all your money back and you also have to find the money after a court’s judgments.
Accounting tools matter
For any business, wages make up a large portion of the company’s running expenses. In the service industry, up to 50% of the gross revenue can go to paying staff.
That being said, not every small business owner has the money to pay a full-time accountant. This is where the right accounting software comes in. Your initial expense for the software might be big, but it will be a one-off expense. Finding the right package for your company will be key, though.
These software packages can do anything from generating invoices to sending notices. If there is one aspect that you should look for, though, it is cloud storage. Your data is always kept safe and is not dependent on your hardware, which is another expense that you can cut down on.
As a small business owner you want to save money around every corner. Start with a solid business plan. If you don’t have the expertise, there are a lot of free resources at your local SBDC, or you could look at some paid services like best paper writing service like Rush my essay.
Finally, as a small business you could be tempted to boost your revenue by giving your clients discounts. This does not promote any loyalty with your brand. In fact, it creates an expectancy that there will always be a discount on offer.
As soon as you drop the discounts, you drop your client. Rather, promote your company by living up to the standards that you set. Providing a stellar service or product will generate confidence in your brand and create an environment where you could keep your clients or make regular clients.
Running a small business can be quite daunting, but if you make sound financial decisions, you can navigate the waters of financial turmoil. Apart from the product and service that you provide, keeping an eye on your money is the most important thing you can do.
Investing time in making all the calculations of your expenses and revenue will pay off in the end. It will ensure that you stay afloat and also grow over time.
This piece was submitted by Becky Holton, a journalist and a blogger at best essay writing service. She is interested in education technologiesand is always ready to support informative speaking at Essay Writing Lab,Brill Assignment. Follow her on Twitter.