Financial Failure in Business – 10 Tips on How to Avoid It

Business is the backbone of the world’s economy. This is where the most jobs and wealth are created. A large percentage of businesses are entrepreneurial (or start out that way). Unfortunately many do no make it. This article gives some tips on how to avoid financial failure:

1. Detail financial planning must be done before embarking on a business. This must continue throughout the existence of the business. Planning should include cashflow projections and sensitivity analysis on key parameters.
2. Find out what requirements financiers have. Position the business around it; keep the credibility of the business intact and work on the relationships with financiers.
3. Enhance the financial acumen within the company. Management needs to understand the meaning of financial statements, cashflows and financial ratios.
4. Inventory should be managed at optimum levels. Have a proper stock system to manage it. Only keep stock items that moves fast or that is strategic important.
5. Control the growth of the business to acceptable levels. Understand how much growth is sustainable and how it will be financed.
6. Targeted gross margins should be well researched and form part of the business- and marketing plan. Work as far as possible to this target. Avoid doing business at all costs.
7. Do everything in your power to ensure that at least a minimum turnover (that cover expenses) is achieved. Research the market and do proper pinpoint marketing.
8. Control expenditure diligently. Know why money is spent and how it is spent.
9. Have a strict credit policy. Follow the policy. Ensure that customers that do not keep their commitments are professionally dealt with.
10. The most important aspect of the business is to manage its cashflow. Cashflows must be projected and monitor on a monthly basis (or shorter if required). Be pro-active in handling potential cashflow problems.

Copyright© 2008 – Wim Venter