Why Am I Constantly Running Out Of Cash?
This question has plagued many a business owner struggling with cash flow problems. This blog will help you find the answer. We have all seen how many businesses that arrive with a bang at the marketplace, fizz out just as soon. They lose money heavily, and eventually fade out of the picture. According to the Bureau of Labor Statistics, only 50% of businesses survive the first four years.
The critical aspect that differentiates successful businesses from the struggling ones is the way they manage their money and eliminate unnecessary spending. Fundera says that 82% of businesses fail due to cash flow problems. You definitely don’t want to be one of them. So here are some tips to help with your cash flow problems.
7 Ways Businesses Lose Money and How to Avoid Them
Small businesses often get too caught up in trying to create a big business image. They spend millions of dollars on various image building and marketing efforts While things like shiny promotional material, jazzy websites, and elaborate advertising efforts may seem like a good idea, remember that it is more important to build a solid and consistent brand image.
Pro Tip: Start small and simple but be consistent; nothing sells your products and services better than your quality and customer service.
2. Real estate
It may be tempting to rent, lease, or even buy that coveted piece of real estate for your new office or store, but calculate your expenses carefully. Such property decisions can drain your finances and leave you high and dry. Remember, many of the most successful businesses in the world had very humble beginnings – some even in their garages.
Pro Tip: In case you have spare or unused space in your office or factory, lease or rent them out to better utilize them.
The problem begins when you lock in too much of your capital in stock, or if you do not plan ahead for smooth inventory movement and cash conversion. This could lead to inextricably cash-strapped situation.
Pro Tip: Learn to tweak your inventory levels that are just right to meet your sales needs, and employ strategies like Just-In-time, etc. for optimum results.
4. Operational Efficiency
A business that is not utilizing its resources well is bound to run into cash flow problems sooner than later. Understand the current operating parameters of your business and fine tune them to run at peak efficiency.
Pro Tip: Establish performance metrics for each KRAs and ensure you meet them every single time.
5. Core Competency
Avoid getting tempted to diversify into various streams and stay focused on your areas of core strength. By focusing on a fixed range of products and service offerings, you will be able to have more control over the quality and productivity of your business. You can also consider subcontracting specific sections of your services or manufacturing, to further trim down the costs and improving overall efficiency.
Pro Tip: Stick to what you know best.
6. Human Resources
Hiring and training employees takes a lot of time, effort, and money. Do not to hire too many employees, nor stay understaffed. The same applies to ensuring the right job fit as well. Do not fill your ranks with freshers just because they cost less. Your criteria should never be the cost. Monitor your attrition rates and try to keep it down to a minimum.
Pro Tip: Look for the right attitude and culture fit in your prospective employees. Nurturing a loyal set of employees to stay with you for long, and who can be groomed to fit your work ethics and culture would be ideal.
Avoid investing in tools like CRM/ERP or developing a complex e-commerce site where it is not warranted. Other tech tools can also be an expensive investment and may not entirely justify the stage in which your business is in.
Pro Tip: Your business isn’t the place to explore gadgetry. Get scalable and flexible options, which can grow with you over time.
Running a small business successfully requires you to be vigilant. You need to identify areas that cause cash loss issues and fix them immediately. Run through your financials and look at the top five expensive items. Look into how these expenses can be reduced without affecting quality. Hire experts who know how to work efficiently and minimize waste.
Every penny matters for a small business. Having worked as small business consultants for decades now, we know the drill. Allow us to plug those cash leaks and help you be a financially fit company and succeed. Give us a call.