Insufficient funding – Business shuts down
Insufficient funding is probably the fatal reason why businesses collapse and you don’t see any results in business. Running out of capital, reaching the funding limit, and excessive mismanagement of funds can create serious problems for your business.
So what can you do to avoid the situation of insufficient funding, well there are lots of things you can do. For starters, don’t start your business on shoestring. When you start a venture or a new business you’ll have to assume that owing to several risks the profit might not be generated in the first 30 days, 90 days, or 200 days. So you should keep some sensible capital reserved for you to meet the emergent and potential needs. Ensure that. Also, it doesn’t have to be your money; you can also generate funding from some MNC or any financial institution. In the “No. #2 Key Reason Why Businesses Fail“, we discussed thoroughly understanding the industry and its significance. Well, if you do understand it and know its fundamentals you’ll know the ways to raise funding for your business, and not only will it help you creating enough funds but also you can effectively manage it.
Structure your funding adequately
You can gather Intel from your competitors about generating-managing-disposing the funds, and they don’t have to be your rivals necessarily, they can be someone who has a good grip on the same industry. Here’s again business coaching and coach come in the picture. They can help you understand the fund structure and sources to generate funds.
In the context of cash flow, I recommend you to not look into things on a day to day basis. Plan them weekly, monthly, and plan them in advance. Your understanding of the structure of these plans should be synchronized. Understand your bills, taxes, and divide them in such a manner that you don’t have to burden yourself at the end of the year. For instance, if your corporation tax comes annually, pay it in with a month due so that you don’t struggle with an excessive amount all at once.
Improve your terms
Looking at your terms and improving them is also a better way to maximize your cash flow. For this, you’ve to maintain a record of a few things, for example, what sort of credits are you extending to people? Hypothetically speaking, you gave someone a 60-day term or so, can you ensure the payment in 10 days with an 8 percent or 11 percent discount or some kind of guarantee.
In this era of instant banking and online banking, if someone were to ask you how much cash do you have in your bank account right at this very moment, will you be able to answer? If not, I suggest you rethink your business strategies, capital management, and overall supervision.
Business coaching can help you secure funds
Also, it’s advisable for you to bring in someone credible to your business that will help you secure funds from financial institutions and enable you to present your numbers carefully. Finally, the trick to raise the fund is to raise the fund, what I mean by that is you can set your goals for 6 months, a year and so. Make sure you’re always in touch with a finance company, banks, and people that are knowledgeable about finance. You’ve to ensure a positive cash flow because it equips you with more money; more money implies more stocks and more stocks indicate more successful business.
Startups: Right way to start a new business
Almost ALWAYS, FIRST TIME startups make a seriously wrong decision. The wrong decision is… STARTING a STARTUP WITH INSUFFICIENT FUNDS. Every single startup first calculates the required investment but with a common mistake, the mistake of unseen expenses. Things go like this– Someone wants to start a franchise of XYZ. The company XYZ will handover the estimated investment, say $50,000. This investment will include the franchise fee, outlet opening expenses, hiring staff, and whatever YOU and even talker of (generally, salesperson) XYZ. Then they will handover earning projections based on assumptions. Saying something like… “suppose you get an average sale in the first quarter then you’ll have $40,000 in sales and your savings of $15,000. Hence, within a year your investment will be back to you”. or whatever. But one thing will be there for SURE… the high income, big profit, low investment, and EASY TO HANDLE. This person has to say $40,000 as savings to invest and can easily arrange to remain $10,000. OR Sometimes this person has $60,000 keeping $10,000 in reserve. Hence, this person takes the decision to go ahead. But when this person goes into real investments, starts making its outlet then one thing VERY OBVIOUS will happen… The investment goes WAY HIGHER than estimated. This new business went is the state of “INSUFFICIENT FUNDS”. Now, this business will take weak decisions, cutting expenditure in marketing, good looks of the outlet, low paid staff, and much more. Things will go into NEGATIVE LOOP and it makes almost always impossible to get success.
The lesson to LEARN from this: ALWAYS keep 150% more funds in hand than estimated investment.
The Money Rule… “First SAVE, Later Spend” DO applies to businesses as well
The world’s most popular person for investments “Warren Buffett” says… “Don’t save what is left after spending; spend what is left after saving.” Generally, businesses forget this rule. People can easily think of individual savings in the form of mutual funds, fixed deposits, gold, real estate, etc. but it is a little difficult to think of savings for a business. The fact is that… EVERY SINGLE form of such savings can be done by a business. A business can keep savings in a safe place and watch it grow. This saving is important for EMERGENCIES and CRISIS. This way.. the growth of the business may be a little slow but one thing will be ensured that the business will be running and be there.
Things not difficult, we just need some planning and farsightedness. Insufficient funds will start more expenditure in the form of retail buying, paying interests, and especially the spiritual feelings of being in lack of funds. This is a serious danger. Watch it.