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Financial instability is a common occurrence for every business – even Amazon struggled to return consistent profits until recent years. Your small business is probably not getting financial backing like Amazon, so how can your company survive when faced with financial challenges?
Determine the Source
The first step to solving any problem is to find its cause. When your business faces financial challenges, you must find the root of the problem. For instance, if you’re struggling with client turnover, it could be from misaligned expectations from your sales team, poor quality product, or bad customer service. While the problem is client turnover, there are several possible sources.
Jessie Hagen of US Bank stated that 82 percent of small businesses fail because of cash flow management issues. Cash flow is the lifeblood of your company because it’s essentially the money coming in and out of your business every month. Maintain positive cash flow and you will thrive, face extended cash flow deficits and your business will likely fail.
Cash flow management is clearly a problem in many businesses – but, what are some of the common sources of mismanaged cash flow?
To start, cash flow issues can stem from the owner’s inability to separate their business and personal finances. At a minimum, every business should have its own checking account that clearly designates money coming in and out of the company. From there, you should be diligent with your bookkeeping – tracking every sale and expense. Finally, cash flow deficit often comes from failing to collect on accounts receivables. No matter how much product you move, if you can’t collect on what is owed, you will face financial issues.
Read next: 4 Financial Metrics for Small Business Success
Sell More
It may seem obvious, but you can overcome financial challenges in your business and increase revenue by selling more. While the notion of selling more is simple – the process is much more complex and requires creative strategy, persistence, and a willingness to try and fail.
Below are three ways to help you approach selling more.
- Focus on the value: The art of selling hinges on the ability to create perceived value in the consumer’s eyes greater than or equal to what they are willing to pay. Old sales tactics focused on the product and pushing its attributes – but, modern sales is more value-based and puts the consumer first. Find the struggles and problems your product or service solves and make those benefits the selling points.
- Choose the right conversion optimization technology: Most of your customers will not be at the same stage of the buying process when they first interact with your business. Therefore, you must design a sales process that determines where they are in your sales funnel and ultimately, converts them to a customer Optimizing your sales funnel often involves integrating the right communication and management technology. From lead acquisition and CRM to retargeting ads and automated drip campaigns, there’s a software solution that can help you convert more of your leads.
- Leverage customers: Most businesses do not have an effective strategy in place to take advantage of their current customer base – despite the fact that consumers repeat purchases from a business 60 percent of the time. Consider implementing a loyalty program to perpetuate repeat business, offer incentives for your customers to refer your company, and remarket to your clients whenever you have the opportunity. While new business is great, don’t neglect the low-hanging-fruit that is your current and past consumers.
Control Costs
If selling more can help you avoid financial distress, the other side of the coin is cutting costs – which can be equally valuable to gaining more stability with your business’s finances. Small businesses often run lean, meaning they don’t operate with large cash reserves. As a result, it’s important for business owners to be meticulous with every dollar they spend.
There are two main areas where businesses can look to control costs.
Cost of Goods Sold (COGS)
Cost of Goods Sold includes the direct costs you incur during the production or acquisition of your inventory. These costs could include raw materials, direct labor, shipping, or packaging among other direct costs. Businesses can lower their COGS several different ways including negotiating better deals with suppliers, finding more affordable materials, or moving production overseas.
Operating Expenses
Businesses also incur indirect expenses during their operations that are not related to the production of goods or services – these are known as operating expenses. Marketing, rent, salaries of non-production personnel, and office supplies are a few examples of operating expenses. There are a lot of ways businesses can lower their operating expenses including co-working or sub-leasing office space, cutting staff, and scaling budget back for different departments.
See also: 6 Ways to Revamp your Small Business Budget
Always Have a Backup Financial Plan
Businesses need financial stability to survive. However, the reality is – many owners struggle to keep their business operating with positive cash flow every month. The three ideas above can help you start to get a hold of your business’s financials, but if you need an immediate solution, you should look for additional help like a business loan or financing option. If you want your small business to succeed, you need to have a strong plan to keep your finances operating efficiently.
Christine Soeun Choi is an SEO associate at Fit Small Business specializing in digital marketing. Currently based in NYC, she has a background in business studies and math with a passion for business development. When not helping small business owners, Christine enjoys taking photos, exploring artwork, and traveling.
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