Although small businesses have a notoriously high failure rate – various studies have placed the failure rate for startups at between 50 and 90 percent – the entrepreneurial spirit still remains strong in Britain. Indeed, being a small business owner can be immensely rewarding. But it can also be very stressful, particularly when there is a cash flow problem. Business owners have several options to help them deal with such problems, though of course it’s always best to try to prevent them in the first place.
Stay in the black whenever possible
The main reason behind many if not most small business failures is a lack of sufficient cash to maintain daily operations. Ideally, a business will have sufficient liquid assets to cover operating expenses as well as unexpected expenses, but many small businesses operate on a very tight margin and are thrown for a loop by those unplanned expenses. Perhaps a piece of equipment breaks down unexpectedly, a big customer cancels an order, or an expected receivable is delayed or defaulted upon. These kinds of events are beyond the business owner’s control, and the best you can do is to prepare as best as you can, literally expecting the unexpected.
Employing standard best practices in your business to maintain an optimum level of efficiency goes a long way toward keeping the business as profitable as possible during normal operations, as well as helping your business be better prepared to handle the emergencies as they arise. These practices include, but are by no means limited to several must-do efforts.
Good employee management – ensuring that your employees are thoroughly trained, well-motivated, properly equipped and supervised, and accountable for their assigned responsibilities.
Efficient accounting – accurate and timely logging of operations, disbursement of payables, collection of receivables, preparation, maintenance, and submission of tax records, gross labor expenses, and development of precise cost percentage of sales reports.
Accurate sales projections – to minimise accumulation of slow-moving inventory and establish realistic delivery schedules of products / services. Also important is the maintenance of accurate direct sales and marketing costs records.
Materials management & manufacturing – constantly working toward just-in-time receipt of inventory items, adherence to production schedules, and maintenance of acceptable quality standards.
Knowing when it’s time for a loan
Despite the best efforts of competent managers and employees, virtually every business is bound to encounter challenges that are beyond their control. For many small businesses, these unforeseen events might leave the business unable to resolve the situation due to a shortage of liquid assets. In short, the time has come for the business to seek a loan.
Depending upon various factors such as the amount of cash needed and the business owner’s credit rating, there are many types of loans available to help the business over a rough spot. As well, there are several types of lenders, including the traditional big banks and some of the newer “challenger” banks, credit unions, and “alternative” financing such as peer-to-peer and even payday lenders.
Payday loans are usually thought of as a last desperate choice for individuals who are in dire circumstances but have less than stellar credit. But some people use payday loans to fund business borrowing. Despite the very high interest rate on these loans, they can be a reasonable choice if the borrower can pay the loan back in the time allotted (usually 14 to 20 days), without having to roll the loan over, thus making it even more expensive. Even for businesses that have great credit, payday loans are sometimes the best answer despite their higher cost.
This is particularly true when a business finds itself in need of an immediate influx of cash, since payday loans are usually processed, approved, and funds disbursed within 24-48 hours, as opposed to the 72-hours to many weeks between applying for a more traditional loan and having the cash in hand.
Take advantage of available resources
There are, of course, alternatives to seeking loans from your banker or other lenders. The optimal alternative, as noted above, is to structure your operation in such a way that it remains comfortably in the black, and is able to cover unexpected expenses with available funds. Whether you are just starting a new small business, have run a successful business for years but want to continually improve its profitability and stability, or are struggling to get through a business crisis, the Smallbusiness.co.uk charity offers advice on all aspects of small business operations, toward the goal of helping you make your business not merely a survivor, but a success.
And for matters related to finance and support for your business, be sure to bookmark the Government page that will help you keep current on schemes that may be of benefit to you. Having access to such resources can go a long way toward alleviating the stress that seems to be shared by all small business owners. Stress is an inevitable part of being a business owner, but if you handle your business’s finances properly, you can keep the stress to a minimum, and can more fully enjoy the rewards of being your own boss, while contributing something of value to your community.