Good financial management is what keeps a small business running profitably, whereas a lack of control over finances usually results in failure. Improving the financial health of a small business is possible by understanding some common challenges and learning how to handle them.
- Cash flow problems
Managing cash flow is often one of the biggest challenges for any business. Small businesses have many expenses to cover, including recurring ones like rental and payroll. It doesn’t matter how many assets the business has, when it comes to paying monthly expenses, there has to be enough cash available to pay them.
When running a small business fast loan approval could make a difference when facing cash flow issues. A loan needs to be used wisely and will not solve ongoing cash flow problems – to solve these involves steps such as looking at where to cut expenses and how to get paid quicker.
- Creating a realistic budget and sticking to it
It is important to create a realistic budget and regularly compare actual results with what was projected. Keeping a close eye on expenses means that cuts can be made where necessary.
Making a realistic budget involves looking at all the sources of income, including sales, any investment earnings and accounts receivable. Next, it requires looking at fixed expenses, such as rental, equipment leases and auto leases. Variable expenses, such as travel, office supplies and marketing, must also be included.
Building a budget and reviewing it on a regular basis creates accountability and enables more informed decision-making.
- Unforeseen expenses
Some costs are impossible to predict, such as repairing damage to equipment or replacing stolen computers. Building emergency expenses into the budget can help to reduce some of the financial stress caused by unforeseen expenses. Past records may be able to help with assessing how much to build in.
For example, vehicle repair expenses over the past few years could give an indication of how much to set aside for unexpected repairs.
Of course, financial crises can still occur even when there is room in a budget for unforeseen expenses. Ways to deal with them may include decreasing marketing expenses for the month or canceling an event. The better small businesses become at managing unforeseen expenses, the more stable their financials will be.
- Lack of capital
Growing a business means having enough capital to invest in long-term growth efforts, such as relocating to larger premises or hiring more employees. Acquiring funding for business growth can be challenging and major banks are only likely to grant a small percentage of small business loan applications.
One of the major factors tied to approval is credit rating and many small business owners do not know how to interpret their business credit scores. Those who do understand them are more likely to get approval. It is critical to have a plan for how to improve a business credit score before even attempting to move forward with financing.
- Marketing and advertising
It is becoming difficult for small businesses to compete with expensive marketing and CPC campaigns routinely run by large companies. Finding the time and resources to market effectively online is a challenge. Small businesses that don’t want to be left behind need to find creative ways to handle the challenge.
There are many opportunities for them to market online in cost-effective ways, such as developing valuable SEO-optimized content. For example, helpful how-to videos on useful topics can improve search ranking and draw potential customers.