As the owner of a new business, you have a lot to think about, from legal considerations such as trademarks, licenses, zoning laws, insurance, to operational costs such as rent, utilities, payroll, inventory, equipment and more.
Covering your bases is crucial to your company’s success. New businesses usually fail because of a flawed business model, poor management, or inadequate marketing. Many also flop before they realize their potential because they failed to cover their financial bases.
When raising funds for your new small business, it’s important to know exactly how much need. It’s also important to tap conventional and unconventional sources for funding:
• Big Banks: The most reliable source for long-term funding are banks. However, they can take a few months to approve your application and provide money.
• Crowdsourcing: Many businesses with great ideas raise funds through crowdsourcing in exchange for special products and services. Here, your success depends on your ability to excite investors.
• Angel Investors: Start-ups with potential can turn to angel investors for capital. This is usually in exchange for equity ownership.
• Alternative Funders: Many businesses turn to alternative funders after being denied by conventional lenders such as banks. Before signing an agreement with them, read all terms and conditions carefully to avoid being caught in a debt trap.
Once your business is funded, it’s important to maintain healthy cash flow. While healthy cash flow is the lifeblood of any business, it’s especially important for a new business. You never know when your company will need money in a crisis. If you can’t pay your vendors when sales are slow or pay for urgent maintenance or repair costs, then your company will be in trouble.
Likewise, you may need funds to invest in a business or growth opportunity. For example, if there’s a sudden uptick in demand for personal hygiene products, then your manufacturing company will need more funds to increase production. Strong cash flow and a good credit score can help you get a loan when you need it.
Your collection policy must be effective. If you fail to convert unpaid invoices into money, then your cash flow will suffer.
#1 Invoice Effectively
Always invoice on time and send periodic reminders. You can find free and powerful tools online to help you with this. Make sure that the invoice is correct and sent to the right person and department. You can also incentivize timely payments with shorter payment terms, late payment fees, and early payment bonuses.
#2 Partner With The Right Professionals
If your accounts receivable turnover ratio is low despite your best efforts, then stop stressing out and partner with the right professionals, like an ethical debt collection agency. Such an agency can help you recover revenue from your customers without damaging your reputation or your relationships with other businesses.
#3 Screen Customers
Don’t offer credit to customers without conducting financial, reference, and background checks. Alternatively, ask for a deposit before starting work to protect your company.
While there are several reasons why many small businesses close in their first year, financial roadblocks are the most common ones. By being prepared for any situation, your business is more likely to thrive.
