If your business isn’t doing as well as you think it should— or if it’s not doing well at all— perhaps it’s time for some serious assessment of your finances. Check out our article on how smart financial management can help you and your business turn the corner:
Your company’s product or service could be in high demand, your employees could be wonderful and doing the best job possible, you could be bringing in more revenue than you imagined… But if you don’t have good financial management, your business still has the potential to fail. In fact, between 67% and 96% of businesses fail in ten years (source, source). One in five businesses will fail within the first year (source). These businesses are most often due to poor fiscal management.
Smart financial management is the best way to make sure your business doesn’t fail. This article will discuss important reasons why businesses fail, and how you can help your business get back on track with its finances.
Financial reasons businesses fail
Companies fail when they can’t pay bills or cover their operating expenses. Period.
Lack of capital, mismanaging cash, and poor growth decisions are three of the biggest financial pitfalls that cause companies to fail.
Lack of capital
When starting, a company’s business plan must ensure that they have the capital they need to provide enough of a cushion to cover their products or services. It’s not unusual for companies to run out of money or need more than they planned for after launching the business due to unexpected costs. This is a major issue. Without working capital, businesses run into cash flow problems and cannot secure more investors or loans. If a company grows fast, the capital needed to sustain it, as calculated per the original business plan, might change.
Businesses can’t survive when running solely on profits, especially if clients or customers aren’t paying immediately. It may seem that increased sales are the likely solution, but if expenses for increasing sales are too high, this tactic can lead to major cash flow concerns. Not understanding and monitoring expenses and revenue, failing to set prices appropriately, ignoring inventory issues such as selling too much too fast… are just some ways businesses can fail when it comes to cash flow management.
Another critical area of financial management is how a business handles growth. Whether it’s selling more than ever before or expanding into new markets with new products or services, business growth should be intentional. New or increased business costs money. If a business doesn’t plan accordingly, it can drain resources and potentially take a turn for the worse.
Ways to get back on track financially
- Reevaluate & redesignate
Stepping back to look at the company finances is an excellent first step to getting back on track financially. The pandemic impacted so many businesses with devastating losses. But it also changed the way we do business in a myriad of ways. If you haven’t already, take the financial temperature of your business to determine what areas your business needs attention to the most.
Do this by hiring a financial professional to provide a holistic, objective reevaluation. Having an objective third-party working collaboratively with the financial minds at your company will help assess the real picture of the company’s finances. Another part of this step is to clarify employees’ roles and redesignate responsibilities, if appropriate.
Getting a clear financial picture is a much-needed first step for any business trying to get back on track.
- Get rid of excess
After assessing the company’s finances, you’ll be in a good spot to know where you can begin to cut expenses. Finding less expensive credit card processing services or contractors, getting rid of unnecessary equipment or space, exploring ways to cut production costs, using cost-effective digital tools…any of these strategies can help you get your company’s finances back on track.
- Review the market
Reviewing market competition— what is selling and how well it’s selling. Marketing tactics for increasing sales— is another effective method for getting your own business back on track financially. Knowing our company’s value in the market is fundamental in understanding how to position your brand. Market comparisons will reveal areas where your business can improve or beat the competition.
- Growth & marketing
After assessing, cutting the fat, and reviewing the competition, it’s time to think about strategies for the company to build and reach new clients or customers. Smart growth and marketing not only involves all the information gathered in the first three steps, but also considers new ways in which people are doing business in 2022.
Are there products or services you sell that are becoming obsolete? Is your marketing reaching the right audience? What can you do to be on the right growth path— and who do you need to be talking with to get there? These basic questions can ensure your company is moving you toward the right track financially.
Smart financial management: what does it include?
Financial management should be:
- Formulated with short- and long-term goals
- Holistic and include monitoring of capital needs and cash flow
- Specific to your unique company, industry, and business model
Whether in-house or outsourced, a business’ financial management should provide insight and forecasting to ensure no aspect of the finances are falling through the cracks.
Accountants, bookkeepers, financial advisors, or any other type of outsourced financial management should have a track record of helping businesses get back on track, specifically businesses in your industry or sector. Businesses should spare no expense when it comes to smart fiscal management and planning.
Temple Management: your accounting solution
As an accounting firm that serves many businesses with a sweet spot for nonprofits and churches, we know that financial management is key for businesses that want to keep their focus on providing their products or services while knowing their finances are being handled professionally. You’ll be able to do what you do best while knowing your accounting is e being taken care of by experts.
By hiring the professionals at Temple Management, not only will your accounting needs be taken care of in a timely and accurate manner, but you will also be able to use your financial information to make decisions for future growth.
We are experienced and well-versed in what businesses need to succeed. Call us at (770) 892-2087 for a consultation about your nonprofit accounting or bookkeeping needs. We would love to assist you!