According to statistics gathered by the US Small Business Administration, only about half of all small businesses survive past the five-year mark, while just about one-third will make it to their 10th anniversary. Those who fall behind can fail for a number of different reasons, but in many cases, a simple lack of preparation is to blame.
With the right planning, funding, and flexibility, your business can beat the odds and be one of those that succeed in the long run. So, in this article, we’ll go through how you can financially prepare your business for sustaining success or ably managing failure.
Preparing for Success
The first thing you have to do to make sure your business is prepared for success is to have a skilled finance manager with experience in business management within your team.
Aside from analyzing sales and cash flow, Chron shares that a skilled finance manager can help executives in making big financial decisions, while projecting future spending and earning. To enhance the key economic aspects of your business and monitor your business’ health, you should conduct regular analyses of financial ratios and statements with your finance manager. This will give your business a balanced financial structure that will enable you to map out your financial future, and grow with it.
This is very important because when your business is growing, it’s easy to think that everything is going well and will continue to do so in the foreseeable future. Those who aren’t mindful about the dynamics of their cash flow will fall into a trap, and may even fail to sustain the business’ growth even in the short-term. So, make regular projections based on accurate analyses with your finance manager, to make sure that you know how much money or credit you’ll need well before you have to start writing checks as your company grows.
Preparing for Failure
When it comes to business, you do not only plan or prepare for growth, you need also consider possible undesirable situations — such as sales falling flat compared to projections, unfortunate failures in your production floor, or even simply bad management. Only by doing this can you anticipate any challenges ahead and prepare for them financially.
When it comes to preparing for dire situations, this post entitled ‘Emergency Fund: What it is and How to Build One’ by Marcus points out that you should keep a fund for accidents and urgent crises separate from your regular accounts. Be sure that you have quick access to your emergency fund if (or when) you’ll ever need it to cushion an organizational fall. And when it comes to building the fund itself, you can save for it in small amounts over time, as we all know a little can go a long way.
When your business is met with financial problems, you’re not supposed to just immediately dip into your emergency fund or worse, give up and call it a day. As we’ve previously shared in our post on ‘How to Overcome Financial Problems’, there are several ways in which you could fund your company, such as through venture capital or bank loans.
Whether it is for the success or failure of your business, you should always prepare for all possible outcomes regardless of what’s expected. Doing so will enable you to respond more efficiently and effectively to whatever the future holds for your business and its finances.