You have to be patient and strong to own a business. You take the risk of putting your heart and money into an enterprise, and you live and die with every up and down you go through. If you work hard and have the right strategy, you will hopefully have more ups than downs. However, it’s very rare to have no downs at all. The best thing you can do to survive those bumpy times is to be prepared before you are affected.
The best offense is a good defense, and good preparation is your shield against disaster. When you hit a bump in the road, if you have laid the proper groundwork, you will be able to not just navigate that situation, but set yourself to thrive when you reach the other side. Here are some of the top ways that you can prepare your business for unexpected financial hurdles.
Have a Budget
First off, you should never be doing things by the seat of your pants. Living month to month and assuming that you will have enough to pay the bills, your staff, and yourself is no way to run a business. By doing this you will find that your financial situation will get progressively worse, and you will find yourself in debt or missing payments. That’s a good sign that your business is in trouble.
If you want to be prepared for tough times, you have to make a realistic budget and stick to it. A good budget will allow you to look into the future and plan for it, and give you a guide for analyzing your spending. If you see that you are having trouble meeting your budget, then you know you have to make changes quickly to right the course.
Making a budget means monitoring it as you go. Check your spending against your budgeted amounts so that you can keep a close eye on where you are. If you spend more on one thing than expected, you may be able to compensate by spending less on something else without missing a beat. Build an emergency fund into your budget so that you will have the breathing room you need when you face a hurdle.
Keep Debt to a Minimum
Debt is an important way to help build your business and keep it afloat during the early times when you may not be pulling in the revenues you need. However, if you have too much debt it can be very dangerous, and will only make difficult times worse.
Debt can take many forms, such as credit cards, lines of credit, or business loans. If you have too much, you will end up paying every month for the interest without paying down the principal. It’s akin to taking cash and tossing it in the fireplace. When times get tough, you might want to take on further debt to help pay the bills. However, if your current debt load is too high or you are having trouble making the payments, you’ll end up being rejected for funding.
If you have some debt, even if it is manageable right now, you need to take steps to reduce it. Look at places in your business where you can cut costs or raise some revenue. You may be able to lease out some office space that you aren’t using, or cut your office expenses. Take those amounts and put them on your debt until it’s paid off. You can also offer discounts to customers if you need quick cash, or use a factoring service to get payments for invoices faster.
Sometimes, difficult financial times for businesses are the result of unfortunate incidents or mistakes. A lawsuit for injuries on a property or for a service-related error can cause massive financial damage. You will need to pay for lawyers, witnesses, and then possibly awards for damages. With the right insurance, you can help to protect yourself against these costs and keep your business afloat. General liability coverage will help with any situations where another party brings a legal action against you for being negligible. You should also have property insurance and automobile insurance. If you have staff, then your state most likely requires you to have workers’ compensation insurance. Yes, insurance is an investment in something that you may never need. However, it is worth the peace of mind and will protect you from financial disaster if something happens.
Regular Recording and Reporting
One of the most important things you can do as a business owner is keeping a close eye on your transactions. If you aren’t able to do it yourself, then hire a bookkeeper or outsource one. Every sale, expense, and earning should go immediately into your accounting software, or at least within a week. If you aren’t tracking your financial data, you could find yourself dealing with any number of issues.
Your cash flow could suffer if you find that you do not have enough to cover your expenses, such as bills or wages. Playing catch-up on your recording will lead to rushing through the process and making mistakes as well, which any auditor will not appreciate. If you are a public company, then you need to provide accurate and timely financial reports, so it’s best to keep on top of them at all times.
If you are keeping on top of recording, then you can get accurate reporting on a regular basis of your financial situation. You should know at all times where you stand so that you can pivot and make changes if you sense danger coming. Good reports will allow you to more accurately make projections about your direction and switch up your course if need be.
Pay Your Bills on Time
You need to be diligent about paying your bills on time. You must be organized and consistent, and never think it’s okay to miss a payment here and there if you are short for a month. When you miss a payment, you will not just get charged a late fee, but your suppliers and vendors will lose faith and trust in you. Your relationships will be damaged, possibly irreparably. If you run into hard times, you need your business partners to be able and willing to help you out if need be. Maybe at that point they will let you make a payment late, or offer you discounts on certain services to help you out, trusting that you will get back on your feet. If you have already had problems making payments, then they will be less likely to give you a break.
Running into tough times for your business is almost inevitable. It happens to even the best-run companies. The best thing you can do is prepare your business so that it is reliant when trouble arises so that you can come out the other side strong and ready to thrive.