3 Ways Small Businesses Can Overcome Financial Growing Pains

3 Ways Small Businesses Can Overcome Financial Growing Pains

Starting a business begins with a great idea and a dedicated person. You plan and toil and, with a little luck, get your feet on the ground. As difficult as that first leap can be, what happens next is what makes all the difference. If you are ever going to progress past being a one-man operation with a great idea, you have to overcome the financial growing pains all companies face.

Prepare your small business for a prosperous future by avoiding these common pitfalls:

Cash Management

One of the biggest financial growing pains small businesses face is in cash management. As the old adage goes, it takes money to make money. Unfortunately, roughly 80 percent of all small businesses receive payments late. While you can adopt credit terms to help penalize that and policies that take a firm stance on late payments, none of that matters when you were counting on receiving a payment in time to pay your own bills.

Good cash management means that you have financial statements prepared regularly so you can see where your company is with regard to cash flow and adjust company spending so. You can do this by hiring an accountant or checking out higher quality accounting software online by clicking here for more information.

Profit Margins

Profit margins are another big issue for growing companies. The problem is that most small business owners are not accountants, and the simple spreadsheets many companies use when they are just starting are simply not adequate for evaluating profit margins. Small businesses have to be aware of the cost per product or service, as well as the additional cost of overhead. It is entirely possible to have a profitable product offering but lack adequate margins to cover your overhead.

You also need your profit margins to allow for reinvestment in your company. Machinery will need to be replaced and technology upgraded, and it all starts with watching profit margins. Save your small business the worry by using an accounting software that is robust enough to handle regular bookkeeping in addition to job costing.

Sales Cycles

Sales in most industries tend to be cyclical to some extent. Whether you have more customers in the summer than the winter or sunny days over rainy ones, you have to plan for that. It can be tempting to cut prices and offer sales to try to ford these downtimes, but that strategy could cost you your company. Small businesses always lose price wars because they can’t afford to leverage economies of scale and scope the way larger corporations can.

Discounting your products or services heavily can also make your offerings seem less valuable. After all, if you can offer them at half off, they weren’t really worth full-price. Instead set fair prices and offer discounts only when it helps attract a new customer or further a relationship with an existing client.

Proper cash management, monitoring profit margins and being aware of sales cycles can help your business overcome the financial growing pains all small businesses face.

Image via Flickr by kenteegardin

Published by Sandy


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