How to avoid a devastating financial crises in your Small Business by Dave Deicke
If you suffer a financial crisis all the sales records you broke in your business previously will seem worthless. Without a sound stable financial position the slightest shock can be enough to send your business crashing to the ground.
So what can you do to ensure that all your hard work is not in vain? What can you do to make sure that a financial crisis doesn’t rock the boat or even sink it? Let’s take a look at what can cause these jolts and, more importantly, what you can do about it.
1/ Keep Good Records in Administration
Business owners are usually not good record or bookkeepers! People who start businesses are the ones who have great ideas, see a gap in the market or have the personality to sell anything.
You must keep records of your sales, your purchases, how much you have, how much raw material or finished goods you hold.
Without these records you will very quickly lose track of where you are. You won’t know:
- What you have spent your money on
- You won’t know where your cash is going
They can be as simple as a book with one page for your income and another for your expenditure. At least once a month total it all up to see how money you have made
2/ Watch Your Bank Balances
Do you know exactly what your bank balance is today? Why is it important? Because if you are going to write a cheque you must know whether you have the money on your account.
To avoid this make sure you keep a running total in a cash book of what you have on your account. Sign up for Internet Banking.
3/ Have good Cost Controls in place
To keep yourself in a strong financial position shop around for purchases you have to make. Compare prices and specifications. Have an upper limit beyond which you will not pay. Always be on the lookout for a good deal.
4/ Spending On the Wrong Things
Biggest mistake I see. Running your own business can be a very powerful feeling! You may be tempted to spend on anything but the business – a new car, new furniture you don’t need, holidays.
During the early years and even when you are established make sure you spend your hard earned cash on the right things. The trappings of success may not be right at this stage of your business life. Your business, in order for it to grow, needs cash. Remove the cash and you remove the life blood which keeps your business alive.
5/ Not Having a Budget
At the beginning of each year sit down and, based on your previous year’s income and expenditure, set new targets. Look to see where you can cut back in expenditure or even what to cut out.
6/ Have Contingency Plans Ready
Bigger businesses need to have a contingency plan for all parts of the business. A contingency plan is basically a plan which answers the question, “What would we do if this happened …?”
What is your “if”? What if you lose your premises? What if your computer goes down?
For a small business the biggest risk is you! What would happen to your business if you fall ill or even die? Most small businesses are totally dependent on the owner. You do everything!
If you are ill enough for one or two months that you can’t work who will see to the customers? Who will get new ones? Who will see to the paperwork? Who will collect the money owed to you?
These are important questions you must answer now. You have to identify someone who could fill in for you if you are to avoid a potential financial crisis. Your next step is to write a manual on how your business works, and outlining all the key processes. If something does happen then at least there is a path to follow!
Plan ahead, that is my final tip today!