From hiring the right people to developing a customer base, businesses both big and small face obstacles every day. Of all the challenges, however, financial problems tend to hit the hardest. This is especially true for emerging businesses. Statistics show that 21.5% of startups fail in the first year, 30% in the second year, and 50% in the third year.
Most of those failed ventures point to lack of funds as the main reason for shutting down. For this reason, companies can help ensure their longevity and stay on top of their financial health by leveraging professional financial management consulting.
In this article, we explore the most common causes of financial problems in businesses and how to avoid them.
Insufficient Cash Flow
Sufficient capital is what keeps your business afloat—without it, you wouldn’t be able to pay for basic operational costs, let alone invest in efforts that will help your business grow. To maintain a healthy cash flow, businesses must achieve a good balance between accounts payable and accounts receivable. They should adapt cash flow forecasting practices that will enable them to determine if more cash is going out of the business and in.
Companies can also experiment on their payment terms to improve cash flow. For instance, instead of asking clients to pay in 30 days, you can shorten the window to 15 days. Additionally, you could offer discounts for early payers to entice customers to make payments a lot more quickly.
Lack of Capital
Having enough cash on hand to cover operating expenses will only get your business so far. Eventually, you will need capital to grow your business. There are a few funding options that entrepreneurs can explore:
- Venture Funding—a financing option that investors provide to small businesses and startup companies.
- Private Equity—non-publicly traded form of capital obtained from investors who wish to invest or acquire equity ownership of a company.
- Personal Loan—a form of installment credit that can be used for a variety of purposes including funding business ventures.
Not Having a Marketing Strategy in Place
Good marketing can improve your businesses’ visibility which in turn could translate into more customers and an increased ROI. However, overspending on advertising efforts without a strategic marketing plan is just a waste of effort and resources. As with anything, it’s crucial to conduct research first and explore different options so that you can make more informed decisions regarding your ad spend.
Some companies splurge on luxuries like an oversized office, top-of-the line equipment, and fancy company vehicles. Unnecessary spending, however, can lead to more debt and additional business expenses. If you want to maintain a healthy cash flow, it’s best to take a minimalist approach and direct your funds to things that could actually help your business grow.
Improve Your Company’s Financial Health Today
LPA’s team of financial analytics consultants have had years of experience as accountants and financial advisers. You can be sure that your business’s cash is in good hands. We’ll assist you in the collection and analyzing of data needed to make better budgeting and spending decisions. By working with our team, you can expect real-time reports, integrated financial plans, and flexible data storage solutions.
Discover how our financial management consulting services can help your company. Call us at (866) 783-9900 or fill out our online form to learn more about our services.