8 Out of Ten Businesses Fail After Less Than 2 Years
It’s been estimated that roughly 80% of businesses fail within the first 18 months of operating. That’s an astonishingly high number, which is made worse by the fact that the cause of this failure is nearly always improper managing of finances. Especially in the start-up phase of a business, finances are extremely important and must be carefully managed to increase the chance of success.
If you’re striving to be one of the two out of ten businesses that actually make it, check out our list of financial tips that will help your business run smoothly and avoid costly mistakes.
Finance Management Tips To Increase Your Chances of Success
1. Create a Budget
While this may seem like a simple and obvious step, many business owners often overlook it. A strict budget will help you prevent running into unforeseen financial problems and will show you exactly what your profit margins are. You may have to learn to live off a pay cheque that is smaller than you are used to, but by living within your means and avoiding spending too much, you can ensure your business will be more financially secure. This brings me to my next point.
2. Spend Wisely
In the early phases of your business, it may be tempting to buy expensive technologies or company cars, thinking it will help you maintain a professional image for your clients. But overspending or spending unnecessarily will quickly land your business in a financial crisis. By sticking to your budget and learning to save a percentage of each payment, financial crises can be avoided.
3. Separate Business and Personal Accounts
When your business is just starting out, or if it is only making minimal profit, it may not seem important to keep your business and personal expenses separate. But if you have any plans for growth and if you’re trying to create a successful business, it is highly recommended to keep these expenses strictly separated. By using a business credit card you will be able to keep track of all business related expenses, keeping you in control and making it easier on your accountant when it comes time to file your taxes.
You may also want to open up a business savings account. Transfer a percentage of each payment to this account so you can use this money to pay taxes.
4. Manage Accounts Receivables
Make sure that invoices are issued on time and do not wait to collect payments. One of the biggest mistakes business owners make is letting their accounts receivables grow too large. Keep in mind that your expenses will come on a regular basis, while payments tend to jive to a different rhythm. By sending and collecting invoices on time you will find yourself to be much more financially secure.
5. Monitor and Measure Performance
Instead of just assuming that the numbers add up and your finances are in shape, design and implement a system that carefully tracks your company’s financial performance. Know exactly where your money is going and where it is coming from, and compare these numbers to past financial statements. This will help you plan and make financially sound decisions for your business.
6. Careful Record Keeping
One of the most important ingredients to success is meticulous record keeping. Not only does this prevent your accountant from working over-time when taxes are due, it also helps you make smart business decisions. Improper record keeping can make or break a business, making it a crucial component of success. If you lack the time or the discipline to keep accurate financial records, it may make more sense for you hire a bookkeeper for your company. This will keep you informed without taking up your valuable time.
As mentioned in the beginning of this article, lack of or improper financial management is the cause of demise for many business owners. If you want your company to succeed but don’t have the resources to keep all of your records in-tact, you may want to consider speaking with an expert in the field.
Contact Small Business Bookkeeping Services today for more information on how we can help you succeed.
