If you’re a small business owner, you’re likely facing pressures you don’t necessarily want to admit. While you might put on a brave face for your customers, friends and colleagues, it’s not okay to ignore the warning signs your business could be in financial stress. It’s time to get your head out of the sand and start taking positive action.
Let me explain. How often have you had this conversation?
‘So how is business going, John’?
‘Business is great. We’re flat out at the moment. Sales are looking good’.
Internal dialogue of business owners
But if you’re being honest, you’re probably thinking,
‘I hope sales lift next month’.
‘Do I have enough cash to make payroll’?
‘Will I be able to borrow money from the bank if I need to’?
‘How do I get those clients to pay their invoices sooner’?
‘Can we afford to hire another person’?
‘What happens if our trade is down over the same period last year’?
‘How, on earth, do our competitors afford all they’re doing’?
Sound familiar? Don’t worry if it does; most small business owners have very similar internal dialogues running through their brains.
All of these thoughts are born out of financial uncertainty and are the cause of a lot of anxiety. In some cases, they lead to serious conditions like depression and relationship breakdowns, both professionally and personally.
What causes financial stress?
I recently had the privilege of working with a group of specialist business financial councillors who work with businesses in financial distress. I asked them how most of their clients end up in trouble. Was it a sudden internal or external business event? Or did it sneak up on them?
What they told me was, in most cases, the problems had a way of sneaking up on the business owner. Often, the decline followed the same pattern. That’s good news because when there’s a pattern, you can learn how to avoid it.
Here are seven major causes of financial stress in a small business.
- No awareness of the current financial position of the business including things like cash flow, working capital limits and gross margins on product.
- No cash flow forecast.
- If there is a cash flow forecast, it’s a one-off activity to get funding and is never checked against the current business state again.
- Running out of money because of a lack of a financial plan or not sticking to the financial plan.
- Avoidance of analysing any numbers that might reveal bad news, instead hoping hard work would fix the problem.
- Cutting costs, which in turn reduced quality and ended up reducing income further.
- Anxiety or depression about the business incapacitated them from making good decisions, accelerating the decline.
Small business owners usually wear many hats. Working on the financial side of the business is rarely the part of the job that inspires and motivates people responsible for these businesses. When finances get tight, many of us respond by working harder and focusing on what we know. This behaviour is often the very thing that puts us on the path to financial ruin.
Understanding your financial position at any point in time is essential to running a business. With the right tools, small business owners can alleviate stress and plan for the future health of their company. In my next post, I’ll address the steps needed to implement a financial health check of your business. It’s easier than you might think.
In the meantime, have a look at Reep. It’s the perfect tool to keep you out of financial stress.
What keeps you awake at night?