Financial crisis is something every business fears of having. That’s because it is the exact opposite of what they’re trying to achieve in their business. Businesses push themselves. They create great products, soaring sales and amazing customer service. They hope they can truly keep themselves away from financial crisis. As successful as it sounds, there still is no certainty you can help yourself avoid it.
So, what other options can you do to avoid this crisis? And what other steps could there be aside from your overworking? Well, luckily, this article aims to help you avoid just that.
Common Practices Businesses Make that could lead them to Financial Crisis
- Inefficient Record Keeping and Administration.
Financial crisis stems from poor financial records. It’s not surprising. How will you even think you’re leading your company to success if you don’t even know the current financial status of your business? So start your business with good record and bookkeepers. You’ll be able to pay your taxes and keep an eye on your sales, purchases and how much money your business has.
You don’t need fancy bookkeeping. You simply have to have a record for your income and expenditures. At the end of the month, see if it all adds up. This way, you are sure no one else is trying to steal your money.
- Not looking through your bank balance.
Remember that a business does not only have money for day-to-day operations. From profit, a business should also have its own bank account in case of necessary purchases or expenses. Without one, you are sure to put yourself into a financial crisis by not putting much investment in your company.
Open an account for your business and check it occasionally. This way, you know how much money there is in there. This is before you decide to issue a check to suppliers, and lose financial credibility. Always keep a cash book with you or sign up for online banking. So you can easily keep track of your financial status.
- Unacceptable Cash and Credit Management.
Financial crisis will always be linked to every receivable, creditable, or liquid assets you have around. Make sure that in each aspect, you are well prepared and well informed of their current status. Also, completely avoid financial crisis. Don’t just keep track of them. Learn to strategize. Think about where you want to put your money.
For this, we have three don’ts on handling your cash flow to avoid crisis:
- Don’t keep too much of your money at home or even on your business premises. These areas are prone to accidents like fires, floods, and even theft.
- When dealing with another business, learn that you might have to sell on credit. Just make sure that you are also disciplined enough to inform them of any outstanding payments they may have. Ask for prompt payment, they would understand that you too have other expenses you have to deal with.
- If you are given a period to pay for your credit, stick with it. You will only increase your risk of financial crisis by delaying payment and ignoring the problem.
- No Cost and Quality Controls.
Each expense in the business must be paid for. While it may be good to know that you already have a supplier or someone who can deliver all of the product specifications you need, you may still need to look around for other suppliers. Just because you’ve known a supplier, doesn’t necessarily mean that that supplier offers the best deals.
Avoid unnecessary costs in producing your product by comparing prices from other potential suppliers. It will help you save money for more essential expenses. It will ultimately help you avoid a potential financial crisis.
- Unnecessary Spending.
This crisis usually strike start-up businesses for a good reason: business owners spend their profits every chance they get. It is liberating to use your hard earned money on clothes, a new car, and other luxurious things. But it’s more proper to channel your spending on things that count, and things that matter to your business.
The idea is to avoid the increasing risk of financial crisis on the first few years of your business to create strength and stability for your business. Your business needs to grow, before you turn to your wants, focus on it first and your profits will increase over time.
So discipline yourself with the right mindset to avoid financial crisis. When you feel like spending, think first if such expense would improve your business. Avoid acting on impulse and always think twice before buying anything at the business’ expense.
- Making cuts when it’s already too late.
To be a successful business owner is to accept when a product, service or employee just doesn’t work well. To push these ideas and services that you know does not perform well will not only cost you time, but also money. Avoid every opportunity of a financial crisis. Be decisive enough to cut the cord when you know it just won’t work.
The faster you cut off the things that don’t matter, the easier it is for you to focus on the things that do.
- Customer Dependency.
Having customers at all is an achievement on its own. But having only a handful can be a cause of financial crisis. Think about it, if you only have 4 customers, and 2 failed to pay, you are faced with receivables constituting half of your sales that you might not actually get. The same goes should 2 of them change their mind about the business.
Find time to promote your business so that you aren’t left with a small pool of customers. Try to be diverse not only in reference to your customers but also your products. The public can easily shift their interests and tastes. It would be good that when they do, they would still have an option to choose from your products.
- No Contingency Plan.
For big and successful businesses, they were able to dodge financial crisis because they have a plan b for everything. They always have an answer or a remedy to all the possible “what ifs”. This practice has worked tremendously in their favor.
Businesses always has its risk. To be unprepared for them would mean that you’ve wasted so much time on something that will end up in financial crisis anyway. Prepare and strategize on contingency plans. Make sure that at all times, you can serve your customers despite experiencing interior problems or dilemmas.
- Not Communicating with Your Bank Manager.
Financial crisis or not, updating your Bank Manager with the current status of your business is very important. You not only give them the security that your business is doing well. You also allow yourself to build a good and advantageous relationship with your bank manager. So talk to your bank manager, you’ll never know how much help he could do should you encounter a financial dilemma.