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:
- 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.
- 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.
- Enhance the financial acumen within the company. Management needs to understand the meaning of financial statements, cashflows and financial ratios.
- 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.
- Control the growth of the business to acceptable levels. Understand how much growth is sustainable and how it will be financed.
- 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.
- 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.
- Control expenditure diligently. Know why money is spent and how it is spent.
- Have a strict credit policy. Follow the policy. Ensure that customers that do not keep their commitments are professionally dealt with.
- 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
