Small BusinessJuly 23rd, 2018 by Integrity Accounting
Owning a small business can be both a risky and scary proposition. That’s why it’s imperative to make every dollar count. But despite best efforts, 82% of small businesses fail because of cash flow issues, according to the Bureau of Statistics.1
To further emphasize the point, U.S. Bank conducted a recent study on small businesses and discovered these statistics on how cash flow can exacerbate other issues.2
- 82% – Poor cash flow management skills/poor understanding of cash flow
- 79% – Starting out with too little money
- 78% – Lack of well-developed business plan, including insufficient research on the business before starting it
- 77% – Not pricing properly or failure to include all necessary items when setting prices
- 73% – Being overly optimistic about achievable sales, money required, and about what needs to be done to be successful
- 70% – Not recognizing or ignoring what they don’t do well and not seeking help from those who do
Do your expenses exceed your available cash?
If so, you may have a cashflow issue. If you’re just getting started, it’s an absolute necessity to keep track of your expenses. Of course, the best way to not exceed your expenses is to bring in more cash. But if you’re in the early stages of growth, this may not happen right away. But eventual success is more likely by remembering these key steps:
- Assembling the right team at the right time
- Achieving product/market fit
- Staying on top of the competition
- Getting the necessary funding
- Discipling yourself so expenses don’t exceed existing cash
Managing funds can be a juggling act for a small business owner. Especially when you must pay other employees and most importantly yourself.
So how do you separate business funds from personal funds?
One way is to have an emergency fund when market demand for your product is less. In other words, put more aside during your busy season when your product is in more demand, so you can make it through your off-season.
If your business doesn’t have an off-season you’ll have to be even more disciplined separating business and personal finances, so you have enough for things like housing, food, insurance, utilities, and dependent family members as well as money for your operating expenses.
Seek Out Professional Advice
The best way to increase the likelihood that your small business stays in business is to seek out professional accounting advice. A good accountant will help you create a budget and tell you when it’s a good time to expand and how far you can stretch your finances without taking risks.
Going with your gut can be good for some business decisions but a great accountant can also help pinpoint when business pickups by creating forecasts. A detailed forecast can make sure you can accomplish that growth and business goals in a sustainable and efficient way.
And when tax season rolls around a good accountant can offer a variety of correct ways to file your business taxes. As you probably already know, the current U.S. tax law for small business owners is very complex. And getting it right can be hard for busy entrepreneurs.
Our financial experts at Integrity Accounting are happy to help ensure your small business success with a personalized strategy. Call 505.205.1900 for a consultation or click to schedule an appointment.
2. Jessie Hagen of U.S. Bank, cited on the SCORE/Counselors to America’s Small Business website http://www.score.org