You can’t be an entrepreneur or a small business owner without taking on a certain amount of risk. It’s likely you’ve invested not only your time but a lot of your own money into getting your idea off the ground. If you’ve managed to secure external financing, your investors will certainly have high expectations of you. However, with around half of new startups failing to make it beyond the critical first three years, success is far from guaranteed.
To give yourself and your fledgling enterprise the best odds, make sure you take steps to protect your business against all the things that can – and do – go wrong. Here are 5 ways to shore up your business against potential problems.
1. Safeguard your cash flow.
A healthy cash flow is the lifeblood of your business. Even companies turning a profit on paper can be ruined if they run out of ready cash to pay suppliers, rent or staff salaries. Most small business finance problems stem from late payments by clients and customers but you can protect against this risk by giving people an incentive to pay up. An ‘early payment’ discount can work as a sweetener and you should also implement a system of fines for late payment that increase the longer invoices remain unsettled.
2. Consider funding options carefully
To run a small business successfully, you need to balance securing funds to fuel growth with the risk of accumulating unsustainable debt. Some small business owners prefer to take on all the risk themselves so they can keep full control of the company, as well as a full share of any profits gained. A long-term bank loan to fund growth may offer the most favourable repayment terms, but you’ll likely need to provide personal – as well as business – security. That could mean losing personal assets like your home if your business goes bust.
Another option is to seek funds from an angel investor or other form of equity finance. This will keep your business debt under control but you’ll need to give up some measure of control over business decisions. Whichever form of finance you decide on, make sure repayments don’t impact too heavily on your business cash flow. If they do, find another way to grow.
3. Stay on top of your accounts
You can’t determine cash flow, profit and loss or how to implement cost-cutting measures without well-organised and up-to-date financial records. If you don’t have the time or inclination to do it yourself, hire a good accountant or outsource your bookkeeping to an external accounting services company. Even if you rely on outside help, you should keep up with day-to-day bookkeeping tasks like invoicing and bill paying as well as your projected tax burden. It’s your company and the more knowledge you have about its financial operations, the better equipped you’ll be to implement practices that will lead to growth.
4. Make the most of I.T.
Modern technology – together with the advent of online retail – has made it possible for anyone to build a successful business by themselves. However, if you don’t take advantage of the time and cost savings offered by IT solutions, your competitors will be far ahead of you. Cloud-based technology, for example, allows you to store, access, amend and share all your important financial data online and in real time. With everything backed up in the cloud, your financial records are secure against loss or damage, protecting your business. IT solutions can also include outsourcing aspects of your business operations – including reception services and customer enquiries, technical support, sales and more – to a professional contact centre. This can save your business both time and money.
5. Know the law
Running your own company means you have a lot of responsibilities to shoulder, both financially and legally. It’s vital you understand your obligations in terms of business and financial law, such as the legal rights of any employees or what kind of insurance you need to have in place. If you handle customer information, you also need to be aware of your responsibilities under the Data Protection Act.
Taxes and VAT regulations are another potential minefield and pleading ignorance won’t help you avoid hefty fines if you’ve failed to comply with the law. To protect your business against any oversight that could lead to financial ruin, you should seek advice from an expert in financial and tax law.
Even with plenty of foresight, you’ll face any number of unpredictable challenges as you build your business. Protecting your small business in every way you can will help you to weather any potential storms and sail towards success.