“The Number 1 reason why small businesses fail is that they run out of money.” That’s a bold statement, but 50-70% of all new businesses fail for this very reason. The good news is that there are many simple and easy things you can do to help your business avoid running dry in the near future says Paul Haarman.
This article will cover 8 simple steps you can take to ensure the financial stability of your small business.
1) Know thy customer
If you have any doubts about what your customers want then it is time to get out of the game or reassess your approach. You need to know who your customers are and what they are looking for in a product or service. Position your business in such a way that it will provide them with exactly what they demand and nothing less.
2) Know thy costs
You need to know all your costs, fixed and variable. By tracking these in a simple spreadsheet like the one below you can gain insight into which aspects of your business could use improvement and in what areas you may be profiting too much. Once you have done this for at least three months then you should be able to break out your projections to help establish sales targets and pricing strategies that will get you where you want to be financially speaking. In other words if anybody asks how much money you make just tell them “Not enough.”
3) Pay yourself last
This is probably an unorthodox suggestion, but it is an effective one. Just like your business needs to know its costs so too do you need to establish the cost of doing business for yourself? A lot of people hope that their business will help them pay off a little debt or support a small lifestyle yet end up putting money towards these ends long before the business has a chance to provide anything says Paul Haarman. If you want your business to succeed then put yourself last on the list of financial priorities and watches the dollars flow into the bank accounts.
4) Keep it lean
One thing I have learned from my time working in big corporations is how inefficient they can be when dealing with resource allocation compared with smaller businesses. In large companies resources are often used without thought given to where they should be used most effectively. This is less of an issue in small businesses where every resource must be treat like a critical part of the machine. As such if you can use fewer resources to accomplish you goals without impacting quality then your business will become more profitable at no real cost.
5) Make one-time investments
While it is important to keep costs down it is also good practice to make one time investments when they are needed rather than constantly buying replacements for worn out assets explains Paul Haarman. Cars, computers, office furniture and even marketing tools are all great candidates for this type of investment as these kinds of items have long lives that are often under-utilize by businesses that would rather invest in short term gains then prepare for future success.
6) Don’t spend your profits
The same thing that applies to one-time investments also applies to profits. If you have ever worked in a corporation then you are probably familiar with the process of “Accumulated Earnings” which is where companies tend to spend upwards of 90% of their annual profit on superfluous junk. As stated above, unnecessary spending only serves to reduce profitability so rather than purchase new office furniture or other assets it actually makes more sense to reinvest this money into your own business.
7) Use technology wisely
Technology can be overwhelming especially if you are not accustome to using it daily. With that being said, there are many software tools available today. That could help improve productivity and thereby reduce overhead costs term. Tools like Trello, Slack and Productive can help centralize communication between employees and make the whole company more efficient while services like MailChimp and Constant Contact can be used to implement highly effective marketing strategies. The bottom line is that technology has a way of leveling the playing field for small businesses. While providing them with opportunities that simply didn’t exist in prior decades.
8) Make it portable
Technology not only makes your business more efficient. But it also facilitates the ability to take business anywhere you might need to go; whether that’s your customer’s place of business or on vacation says Paul Haarman.
Running a small business can be difficult. But the most important thing that you must remember is that it’s your business. And if you want to succeed then you need to do things for yourself, not just for others. Nobody cares as much about your financial success as much as you do so don’t be afraid to make choices designed. To benefit your bottom line as opposed to those that benefit the company as a whole. In other words, don’t just survive, thrive!