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If you ever care to closely examine why startups fail, you’ll see that the issues include lack of innovation, mismanagement of financial resources, failure to hire the right people, inability to access capital; inability to adapt to changing business environment and immigration policies.
According to the U.S. Small Business Administration (SBA), small businesses represent 99.7 percent of all employer firms and have generated 64 percent of new jobs since 1995. Have you ever wondered what the American economy would look like if the majority of these failed businesses succeeded?
Let’s start with the most obvious fix. Most small businesses are born on a big idea rather than financials, but that shouldn’t be the case. Instead, small businesses should implement these three strategic financial plans as soon as possible.
Related: How to Start a Business With (Almost) No Money
1. Be acquainted with your business cash flow analysis
While not all small business owners have finance backgrounds, most are naturally curious about the basic inflow and outflow of cash to their business. A typical small business owner can tell you that they buy a good for X and sell it for Y at a profit. But, many additional cash outflows — such as recurrent and fixed expenditures, loan payments and private and business purchases are often ignored.
It’s crucial to balance these two figures and maintain a reasonable balance of cash at all times. An effective cash flow system will help you manage funds to cover operational costs and bills and help you foresee potential problems in the future.
Related: 22 Qualities That Make a Great Leader
2. Hire a consultant for specific services
It is not possible for a small business to be good at everything, which is why attempting to hire full-time employees to cover every function is a mistake. Conversely, a small business has to execute critical functions really well or it can’t succeed.
Compare the cost of hiring full-time employees to getting the services you need from a consultant. For instance, you can save business resources and achieve greater results by hiring a consultant in a short time to professionally provide seasonal marketing services.
A transport company might be a better alternative to owning the vehicles and paying drivers you’d need to convey materials yourself. Or, use a consultant for a specific skill needed within the short term, as opposed to employing someone. Just make sure you don’t need the consultant for a long period of time, as it could end up being even more expensive over time.
Related: Habits of the World’s Wealthiest People (Infographic)
3. Embrace strict financial discipline
In general, strict financial discipline is not only a business policy, but a habit that small business owners should inculcate with as much passion as they do with that original big idea. You need a fully fleshed out annual budget that accounts for seasonal spikes and dips, plus anticipates periodical capital expenditures. Do not exclusively plan for the best case scenario and never spend more than what you have budgeted.
With a small business, unlike with a large corporation, the human element can also be a distraction from sound financial discipline. Don’t give loans to friend, business partners or family members based on pity but on ability to pay back.
During my early days at my academic and business research venture, I was conscious of my spending. This led me to explore promo codes while shopping online. By doing this, I had extra funds to plough back into my business for enhanced productivity. Today, that little sacrifice has paid off.
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