You’ve started your business. The revenue is coming in, and you’ve finally turned a profit. Expansion and success are right on the horizon, BUT: you don’t know how to handle and maintain this steady increase effectively, and you lack the financial skill set needed to sustain the flow of revenue your business is enjoying. What to do? Look no further than the following steps:
This stage early stage in your business is crucial, because you’ve made it to a threshold that several businesses flounder and fail at. According to a recent report by StatisticBrain, depending on the industry, the average percent of businesses closing shop after just a year is 25% and this number increases over time, with 36% failing on the second year, 44% on the third year and 50% in the fourth year. So once business begins to boom, how do you maintain the boom?
One of the major reasons for businesses folding is incompetence. According to the same report, there are three major reasons for business failure (including inability and neglect) accounting for a total of 46% of total closures. So once business begins to boom, how do you maintain the boom?
1. Pricing. This matter involves pegging a cost for the purchase of one’s product in the market, allowing for revenue and profit as well as placing the price at a level acceptable to the purchaser. Thus, there are three factors to be concerned with here, which, according to an article published on Entrepreneur.com are production cost, customer utility and price. In a nutshell, production costs involve the expense shouldered by the entrepreneur to create the product, while customer utility would be the price the customer values the product at. Price, in the end, should be a value between these two factors in order to allow revenues (to cover production cost) and profit (earnings on the sale of the product) can be realized for the company’s benefit.
2. Financial Planning. This is another major factor that when done incorrectly, improperly or incompetently can lead to the company’s financial ruin. This involves over-expansion, lack of a system to track finances and even failure to realize financial opportunities for the company. When one spends too much on the purchase of new materials or equipment, or expands the workforce dramatically without any return on these investments, there certainly can be issues as to cash flow as the expenses of the business are greater than its revenues. Another example would be the absence of a process to track inventory or even a system to determine accounts payable and/or receivable would certainly affect the overall liquidity of the company. Still another example is missing opportunities such as tax rebates, payment terms and even discounts can affect in one way or another the overall financial standing of the company.
3. Managerial Acumen. The business owner is the captain of the ship, and as such the ship either sails or flounders under their command. Business decisions become mistakes at certain times. Thus, in order to avoid any floundering of any business operations, a necessary fund needs to be put up as a reserve for any sudden issues that may arise. This is one aspect of managerial acumen that is often overlooked. Putting up a fund, albeit a small one accumulated over time, would allow the business to weather financial storms that may occur because of reversals or even managerial missteps.
As can be seen, keeping cash flow for one’s business can be done and done well. Proper pricing, instituted financial systems and managerial acumen are certain and tested ways to continue the company’s liquidity in the long run. Business owners can also refer to savings rates and options on a site like www.DepositAccounts.com.
Dave Landry Jr. is a personal finance manager and blogger who enjoys writing about spending, debt management, investing, accounting and banking. He hopes you enjoy this article and will start yielding greater results in your burgeoning business.