If you are setting up your business, you will need to keep on top of business finances. Knowing what is going on financially within your business and making sure you have enough cash to pay the bills, buy necessary assets and continually invest in the business, is key to the survival of a small business.
Common finance issues
Here are some possible situations that can occur when you start up your business and how to deal with them.
Not having enough cash in reserve
Business owners need money in order to invest in the setting up of their business, however, it may take months or even years to receive a steady income from your company in return for the initial investment. When starting out, it’s important to spend cash wisely, but perhaps more importantly it’s key to have cash in reserve as back up in case the worst happens. It is always better to be prepared where cash and business is concerned.
Mixing personal and business finances
In small businesses, it can be tempting to borrow some cash from your business or put some of your personal funds into the business in order to help it grow. However, in many situations, this is a bad idea as it can blur your accounts and makes it more difficult to keep on top of accounts, budgets and the business books. It can be tempting to do this but you should keep personal and business accounts separate where possible to help determine the true profit and loss for your business.
It’s also essential for new and small business owners to understand that most forms of commercial finance require a personal guarantee. If the business unfortunately ends up failing, those lenders will eventually come calling for that personal guarantee. Where possible it may be better to avoid using personal cash or assets as a guarantee.
Being plastic dependent
Many owners of small businesses can become heavily dependent on credit cards in the early stages in order to finance their business. However, credit cards have high interest rates which can exacerbate a small businesses financial situation. Small business loans and capital injections are a much better and safer option for your business in the early days.
Collection of payments not being made clear
Your payment terms should be printed on every invoice you send out. As a business, one of the first things you need to do is to decide on a simple, step by step process to collect payments owing. Make sure you send prompt reminders and make sure you follow up any collection dates and demands. If you are consistently not receiving payments on time, then it may be worth looking into an invoice financing facility, either discounting or factoring
Not paying yourself a wage
In the early days of a business, you may think it is a good idea not to pay yourself a monthly wage and instead pour that money back into the business. But, you should always make sure you pay yourself a wage, even if it is less than you would ideally pay yourself. This way you can keep on top of your personal finances and remain in the black, personally and business wise.
Keeping on top of your business’ finances is essential for maintaining a good understanding of your business’ situation and dealing with any problems that arise quickly and efficiently.
If you are struggling with your business’ finances or you need a cash injection, get in contact with us on 0800 084 3923. Our experienced and friendly staff will be happy to help and advise you on the best situation for your business.