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How to Overcome Financial Difficulties in Business

Keeping a business up and running is not for the faint of heart. Statistically speaking, the U.S. Chamber of Commerce reports that approximately 80% of the businesses operating with less than five hundred employees make it through the first year. Around 70% of these companies are still operating by the end of the next year. Moreover, by the time they hit the five-year mark, only half of those surviving companies are stable enough to carry on with their businesses.

Fortunately, there’s a good chance that you can rank among the long-standing companies when you’re adequately prepared to overcome the financial difficulties in business at all times. However, before we move on to discuss how you can do it, it’s essential to review some of the basic problems that lead organizations to deal with financial issues in the first place.

6 Factors That Lead Businesses to Encounter Financial Challenges

  1. Inconsistent Cash Flow – Most companies don’t have the proper know-how to manage their cash flow adequately. These shortcomings include balancing accounts receivable and accounts payable to maximize the cash-to-cash conversion cycle.
  2. Insufficient Capital – Insufficient capital is mostly due to a lack of a secure budget plan. However, no matter the cause, this factor alone compels more than half of the businesses to shut down before they get to start operating properly.
  3. Debt Accumulation – With inconsistent cash flow and insufficient capital, there’s very little chance a company can avoid going into major debts that might greatly impact the organization in the long run. Often times when in order to cover overhead such as payroll and rent, business owners will take on a lot of debt in the form of credit cards or small business loans.
  4. Debt Accumulation – Not to mention, you can’t make money without a steady, if not a growing, customer base. Lack of effort in boosting your marketing tactics is a big cause of a lack of a customer base. Many times, not enough market research has gone into determining where your proper customer base is.
  5. Debt Accumulation – Not to mention, you can’t make money without a steady, if not a growing, customer base. Lack of effort in boosting your marketing tactics is a big cause of a lack of a customer base. Many times, not enough market research has gone into determining where your proper customer base is.
  6. Unforeseen Expenses – Lastly, understating or completely neglecting the unforeseen expenses when creating a company budget is one of the leading reasons businesses run off-track and shut down. While payroll and facility expenses seem pretty straightforward, unexpected repairs to equipment, professional services such as attorneys and accountants can throw your budget off track.

8 Steps for Overcoming the Financial Difficulties in Business

  1. Identify the Underlying Problems – To overcome the financial difficulties that come with running a business, you must identify your problem areas first. The six points we discussed previously will help you establish precisely what needs to be targeted to get back in control and on track.
  2. Restructure Your Business and Budget Plans – Once you detect the weakest link leading to reduced profits, you can begin restructuring your business plan accordingly. This task is usually delegated to the senior project managers who can eliminate the business vulnerability by focusing on the company’s strengths. The business plan needs to be structured department-wise so that each team can focus on improving the targeted area using their particular expertise while utilizing the dedicated budget proficiently.
  3. Check Inflows and Construct Business Expenses Effectively – There’s no funding, capitalization, or insurance without consistent incoming cash flow. That’s why it is necessary to check your inflows and establish whether you’ve been accumulating unnoticed debts or stocking your inventory unnecessarily. Once you’re monitoring your inflows diligently, you can construct your expenses without creating havoc. Furthermore, you should never be scrambling for funds at the end of every other month. Instead, all your dues and payments should be scheduled and planned, which gives you the time to negotiate better deals with suppliers or find new ones. Moreover, it’s crucial to factor in the unforeseen expenses when creating your company budgets, so nothing gets you off-track.
  4. Sell Unnecessary Assets – If your business’s financial situation worsens with time, you must consider selling your unnecessary assets to gain back some of the lost control. You might be surprised how many immediate expenses can be covered using the money you get by selling assets your company has stopped using, to begin with.
  5. Boost Your Marketing Tactics – The main initiative of any business is to make hefty profits, and you can’t do that without a rising customer base. If you want to encourage your potential clients to buy your products or patronize your services, you have to come up with revenue-boosting marketing strategies. While this step might require you to spend money for advertising your business, the sales you’ll get due to this will be more than compensating.
  6. Look for Investors – Finding professional investors who are willing to finance your business helps you in more than one way. You get steady money to overcome the financial difficulties in business, in addition to upscaling your services, investing in good marketing tactics, and even using the investor’s experienced advice to turn your business around.
  7. Pay Off the Biggest Debt First – Many businesses make the mistake of paying off their small debts while waiting for a miracle breakthrough to cover the major dues. In reality, you should concentrate on clearing your biggest duets first, considering that the rising interest rates you have to give back on them can effectively put you out of business when left unattended for a long time.
  8. Report Everything – Lastly, it’s crucial to report all your finances regularly, so you don’t have to deal with a sudden expense without warning. Plus, it’s essential to remember that even reporting your revenues incorrectly on the tax forms can put your business in jeopardy at times since improper deductions can result in huge interest charges, fines, and jail time. Not to mention, when all your accounts payable and accounts receivable are listed in one place, you can construct your business plan much more effectively, keeping the report as your reference point.

The Final Verdict

While financial difficulties in businesses are a reality you can’t avoid, you can always make effective plans to position your company for success without incurring major losses in the process. As long as you manage to tackle the issues that keep lowering your sales and restructure your budget plan accordingly, your business will continue to grow slowly but surely.

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