Starting a business can be a daunting time, and there are many factors that you’re going to need to think about and plan for to make your business a success – one of the main ones being how you’re going to make a profit. Before you kickstart your business, you’re going to need extra funds to help you get it off the ground – but with a range of finance options available, like a small business loan, a merchant cash advance, or an equipment loan, you can improve your cash flow and give your company a boost. Below, we’ll look at 4 of the main factors that can harm your business’s financial success, and how you can avoid them.
- Lack of funding
This is one of the biggest issues new companies face, which means they cannot reach their financial goals. When starting a business, you won’t have had time to generate revenue to help with bills like payroll, overheads, and utilities, so if you struggle to make a profit, you’re quickly going to realise you can’t make these payments. If you don’t have enough funds to access to start with, the likelihood is you’re not going to be able to give your customers what they want. Lack of funds means it could take you longer to grow your business, and you may be unable to take opportunities when you see them. This is detrimental to your business overall, as it means you won’t be able to expand or diversify.
Not knowing how to correctly manage your business means you’re more likely to make mistakes, especially when it comes to managing your finances. Whilst it is all well and good to have knowledge regarding the product or service that you’re selling, if you don’t possess strong management skills, you’re likely to come across issues that you won’t have the time to fix yourself. A strong small business management team is made up of people that have skills in certain areas, understand the business and can help it to operate into the future.
- No business plan
A business plan is essential when starting a small business. Taking the time to plan how you want your business to develop means not only can you keep track of the progress yourself, but it means you can make changes if you think there is an element that is not working. A business plan can also help you to gain access to financial help from various lenders should you need it in the future and shows that you are planning to make an income so that you can pay your loan back. Not having a business plan means you won’t have an idea of what you need to do for your business to progress, and you may come up against obstacles that you did not plan for – this can be detrimental to the success of your business.
A business plan should contain a description of your business, employee and management needs, opportunities, and threats, as well as your cash flow projections and budgets. This will help when it comes to reflecting on how your business is progressing.
- Reckless spending
Not having a budget in place can result in spending money where it doesn’t need to be spent. If you’re a new company, there will be a temptation to buy all-new equipment, technology and even machinery, and you may feel like you need to buy a lot of stock just in case you don’t have what your customer wants. This can result in businesses finding themselves in financial difficulty. To stop this from happening, you should make a comprehensive budget with your projections so that you don’t end up spending more than you have. If you’re a new business, it may be hard to correctly project the money you’re going to make within the first month for example, because you have no previous evidence to work from. Projecting how much you think you’re going to make, can be helpful. Add up how much you need to pay for your overheads, payroll, inventory etc. so you know exactly how much you’ll be spending a month on primary expenses. If you can cover this, you can start thinking about things you need that might make your business run more smoothly – if you can afford it, of course.