The Most Common Causes of Finance Problems in Business
Operating a successful company comes with a whole list of challenges, not least of which is maintaining a healthy level of financial stability. After all, any business that is dealing with cash flow and budgeting problems will eventually go under if these issues aren’t rectified in a timely manner. Although every company faces its own unique set of circumstances, there are certain issues that businesses in all industries are bound to face at one point or another. To help you prepare for such stumbling blocks, we’ve compiled the following list of the most common causes of financial problems in business:
1. Lack of Cash Flow
Without sufficient available capital, you can’t afford to pay your bills let alone invest in efforts that will help you grow the business. If your business credit isn’t horrible, you can probably get approved for fast business funding that can provide the cash flow needed to start paying your dues and making moves again. Every business does better when it isn’t strapped for cash, which brings us to our next common cause.
There are two opposing schools of thought when it comes to funding a business – fund everything out of pocket (bootstrapping) or get investors and lenders to fund the business for you. While bootstrapping has its advantages, it is one of the fastest ways to find your company backed against the wall financially. Ideally, you’ll want to use a balanced approach, covering most of the expenses out of pocket but then still utilizing external funding to provide a safety cushion. Studies show that bootstrapped businesses are twice as likely to fail than those that are funded externally.
3. Excessive Ad Spending
Many businesses can fall into the trap of spending too much money on promotion without actually studying the art of advertising in-depth. Untargeted ads can often turn out to be a futile waste of funds, and simply pouring more money into an advertising budget is not the solution. Likewise, outsourcing everything to a marketing agency might not be in your best interest either as they can charge steep fees and won’t necessarily provide enhanced results. Instead, take time to learn advertising yourself so that you can make more informed decisions with your ad spend.
4. Poor Accounting Practices
Accounting and budgeting are the two most crucial aspects of financial management in business, so inefficient processes and oversights in either of these areas can lead to a great deal of trouble. While you don’t necessarily need to pay a professional accountant, you should at least take some courses on how to use popular accounting software.
Finally, the one issue that most businesses with financial problems have in common is excessive expenditure commitments. Newer companies like to make themselves look more successful than they actually are, which can lead to having an oversized office, fancy company vehicles, cell phones, a decked out waiting room, top of the line equipment, and a bunch of other unnecessary splurging that only creates debt and overhead. Take a humble, minimalist approach and you’ll be rewarded with more cash flow to spend on things that actually matter.
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