Starting a business will not only allow you to become your own boss, but it could potentially boost your personal finances if the company is a success. With 50% of small businesses reportedly failing within their first five years, you might be scared about a venture causing your cash flow more harm than good.
If, however, you believe you have a solid business idea that could transform your family’s finances, you can protect your new company by learning about the main causes of business debt.
Delayed Payments and Unpaid Bills
Delayed payments and unpaid bills could pose a serious threat to your business, as it could have a snowball effect. As you will have a lack of money in the bank, you might be unable to pay employee wages, repay your debts, or purchase essential inventory. Limited finances could also prevent you from investing in new products or services, employee training or marketing campaigns.
It is imperative to encourage your customers to pay for a product or service on schedule. For example, you could provide an early repayment discount or incorporate a late payment fee into a contract.
Poor Financial Management
There is no excuse for poor financial management in business. To enjoy longevity in an industry, you must have tight control of your cash flow. If you are unsure how to effectively manage a company’s money, you must hire a dedicated financial officer or outsource an experienced accountant. By doing so, they can update your books, accurately pay your taxes on schedule and offer advice on how to reduce your outgoings.
A Lack of Financial Protection
Every entrepreneur must safeguard their company’s assets and finances, which will allow them to stand the test of time in an industry. Yet, many businesses make the huge mistake of failing to invest in the appropriate insurance coverage for their specific needs.
For example, if you are running a construction company or snow plowing business, it is likely your business will depend on one or more vehicles each day. You can protect your organization by purchasing commercial vehicle insurance, which can provide financial coverage following:
- Property or bodily damage
- A personal injury
- A collision
- Weather-related damage
An Ailing Economy
Timing is everything in business. An ailing economy can cause a ripple effect, as it can negatively impact specific industries, can alter consumer behavior and can lead to smaller business revenue.
A financial crisis can also cause banks to reject loan applications and can lead to soaring interest rates, which can affect both large and small business finances. It is critical to review the market conditions before kickstarting a new venture, as it might be wise to hold off until the economy is in a much stronger position.
Limited Market Research
Many aspiring entrepreneurs are often filled with much passion and ambition for their venture; however, they might fail to thoroughly research their chosen market. While you might have many ideas for an innovative brand, it is important to do your homework to identify if there is a gap in the market for your products or services. Plus, if you are entering a saturated industry, it might be difficult for your brand to stand out from the crowd.