Start ups and small businesses drive our economy. If you run one or work at one you probably know the statistics of failure rates – 20% of small businesses fail in their first year, 30% of small business fail in their second year, and 50% of small businesses fail after five years in business. Finally, 30% of small business owners fail in their 10th year in business. Here are some tips to jumpstart your list of ways to improve your cash flow and reduce expenses so that you can thrive well past that 5 year mark:
- Spending too much on non-essentials in your startup phase Amazon is famous for many things and the first thing they were famous for was using cheap doors as desks. I visited Amazon in its early years at a cheap warehouse office and saw that not only did they use doors for desks, there were 4 people on each side of the door so one door provided desk space for 8 employees. I also worked for a tech company that spent money on expensive desks, couches, chairs, tables, gadgets and three huge screens in a small office space with only 4 employees. That company was never profitable and died in less than three years. Budget realistically, learn from the mistakes and successes of others and spend wisely.
- Letting your receivables go past due for too long
One of the top killers of small businesses and startups is slow cash flow from outstanding invoices. You have to follow up fast. There are small and simple invoicing tips that can help you get paid faster like making your invoices ‘payable upon receipt’ instead of ‘net 15’ or ‘net 30’. You’ll also want to offer multiple payment options including checks, credit cards, PayPal, ACH, and EFT
- Not having back up cash or credit for lean months
Cash flow will always go up and down. Since you can’t always have enough saved up before a low month arrives, it’s important to have other financial resources available to keep your business moving. Cash is always king. For credit there are many options including credit cards, business lines of credit, and loans. It’s worth shopping around to find the best company to help you with loans. Some worth noting are Fundbox, Kabbage, and Fundera. You can also review financing resources on our resource page.
- Overestimating future revenues
Business owners are generally overly optimistic. This is helpful in many ways, but not predicting when or how cash will slow down is one of the downfalls of expecting sales and income to be higher than they will actually be. Forecast your revenues to have a clear picture of where you’re going and how you’ll grow your business.
- Hire too Fast or Fire too Slowly
When you’re small being nimble is a big advantage and scaling too fast is something to watch for. It also means that the fewer employees you have, the more important it is that they are people who are maximizing what’s possible for their positions. The fewer years you’ve been in business, the more important it is that every hire be the best fit you can find so be smart in how you hire. Hiring with care and firing quickly when things aren’t working out is what’s best for your company and for the person you’ve hired. It’s hard to fire people when you care about the financial impact it will have on them, but they’ll rebound and be free to find a position that’s better for them. The universe has a way of moving us forward to better opportunities.