The world of business can be highly ruthless. There are many reasons that a lot of start-ups and small companies fail, from producing a product or service where there is no market requirement, to having a poor marketing strategy or simply pricing everything too high. However, mostly small businesses fail because they run out of money, 29% of all small businesses disappear as they run out of cash according to research. It’s not just having no money though, cashflow problems cause many problems.
A Lack of Capital
One of the main reasons why small businesses fail is due to insufficient capital. Especially for inexperienced business owners, it can be hard to understand both how much starting capital is required and getting your head around cash flow and its importance. Unrealistic expectations can result in not enough incomings and your business closing too soon.
It’s always vital to have more capital than you need, so there is cash available to fall back on should you experience problems. Clients not paying on time will result in issues if you need to pay suppliers but were relying on such payments being made first, for example.
Growth Plans and a Strong Business Model
A strong business model is essential for both planning for problems and success. Through devising ways to deal with a lack of capital or poor cashflow, you should have a back-up plan in place to prevent your business going under at the first financial issue.
Waiting on slow payments can restrict your growth plans, as you may not be able to use the money owed to reinvest in your business. This could be through hiring extra staff, increasing production or offering delivery of products further afield to a new market. Yet not having the money available will prevent this from happening.
Solutions to Cashflow Difficulties
Many small businesses need to get paid as quickly as possible to avoid cashflow problems seeing them fail. Few will have large reserves to fall back on, even if they’ve planned in advance, with slow payments able to crop up at any time.
Invoice finance services, such as those available through Touch Financial are proving a vital lifeline to many small companies. This provides the business with the money owed from clients upfront, meaning they can use it to grow or cover existing costs, before paying the invoice finance service back once the client pays.
If you’re running or setting up a small business, be aware of cashflow and what can be done to counter this common problem.