Financial disasters are the most common reason most entrepreneurs see their ventures fail. They can come out of nowhere or they can come because of multiple mistakes over a long period. But entrepreneurs can survival financial disaster with proper preparation. This guide is going to show you how to do it.
Cash Flow is Your Most Important Asset
People talk about how they’re going to cash in on their creativity all the time. You might have an idea that’s going to get you paid, but that might not happen for another three to six months. In the meantime, you don’t have the resources to run your business. That’s why so many businesses fail.
Don’t think about how much money you will have. Think about how much money you have in the bank right now. Cash flow keeps your business liquid and allows it to keep growing. Without cash flow, you can’t pay your bills. The electric company isn’t going to say, “You can pay in three months. It’s cool. We understand.”
Shift your focus from assets and your annual profits to cash flow. It’s the lifeblood of your company.
Save Don’t Spend
Entrepreneurs are the sort of businesspeople who’re constantly on the edge. They’re spending as much as they’re making. Unless you get lucky, this is going to lead to disaster. One of the reasons why the best business ideas fail miserably is because entrepreneurs don’t have a survival fund.
You’re always going to experience barren periods. Build up a savings fund so you have resources to tap into when sales are down or when you want to launch a big marketing campaign. Try to set aside 10% of your profits every month. Put it into a separate account so you don’t get tempted to blow through it.
Think about Cutting Back on Your Expenses
Financial disaster doesn’t just relate to a lack of profit. Some companies still move huge amounts of product yet fail because their spending levels are too high. Don’t wait until you’re having problems before you start to act. Focus on frugality from the beginning.
Make sure your business is tech savvy by using automation technology to save time and to save resources. For example, instead than employing a full-time employee, you might choose to employ a virtual assistant to complete many of those common tedious tasks.
Another option is to automate many ordinary functions. For example, instead of sending out the same newsletter to new subscribers manually you can use automation technology to have your chosen newsletter platform do this for you.
Be Careful about Taking Out Loans
It’s inevitable that entrepreneurs must borrow money from somewhere. But many start-ups overstretch themselves and borrow too much. The repayments soon start to cripple them and they can’t keep up. The reason for this is not because their business idea is bad, it’s because they borrowed more than they needed to.
More companies are starting to bootstrap. Their owners are looking at other ways to earn some extra money and keep their businesses going. Some of them take out loans, but they only take out small loans with favorable terms. Don’t assume that the bank is your only avenue.
If your idea has strong public appeal you may want to try crowdfunding for your business. You can even look at angel investing. Other entrepreneurs settle on the Bank of Mom & Dad. Consider your options carefully and don’t take a loan unless it leaves you with favorable terms.
Keep in mind that business bankruptcy can make it difficult for you to easily start up another venture and to get credit for that venture. Take borrowing extremely seriously.
Last Word – How to Avoid Financial Disaster
The issue is less about surviving financial disaster because once financial disaster happens most companies are already doomed. The best way to survive it is to avoid it in the first place. That can only be done through practicing good financial habits and exercising vigilance over the numbers at all times.
You need to be as much a creative entrepreneur as you need to be an accountant. Keep control of the numbers and your company will beat any financial disaster.
Have you ever experienced a financial disaster?