Both within Alabama and across the nation, it’s easier than ever to start a business with fewer resources. Plenty of online resources have allowed countless would-be entrepreneurs to start setting up their small businesses. However, while it might be easier to get started, it’s harder than ever to succeed, and many small businesses quickly end up running out of funding too early to thrive. If you want to see your business become successful with enough money to stay open, here are a few tips you can use to start off on the right foot.
Have A Safety Net
One of the primary reasons local small businesses fail is because they lack a proper safety structure to support them if business slows down or stops. A change in the market or even a simple change in the seasons can dramatically impact a business’s finances, and failing to account for this can be catastrophic for small businesses just starting out. If possible, before you start your business, figure out roughly how much money you’d need as a safety net. Here’s how to build up a six-month cash reserve for your business: if your average costs are $20,000 per month and you want to keep a six-month cash reserve, multiply $20,000 by six months. Your cash reserve will equal $120,000.
If creating a safety net isn’t feasible right now due to your current finances, it’s still good to have a plan for short-term financial struggles. For example, if you’re having issues with customers paying bills on time, invoice factoring can help you bridge the gap to avoid you falling into financial struggles. According to the Wall Street Journal, the factor advances most of the invoice amount – usually 70% to 90% – after checking out the credit-worthiness of the billed customer. When the bill is paid, the factor remits the balance, minus a transaction fee. This ultimately results in you having at least enough funds to cover the time it takes for a customer to pay a bill.
Use The Right Tools
In addition to having the right financial planning for your small business, you’ll also need to have the right tools and software to do your routine daily tasks as efficiently as possible. This will vary for every business since every company is slightly different. For example, if you’re in an industry that makes use of field service, the right software can help you manage your employees as efficiently as possible, helping you save. Field service management with integrations is generally called an end-to-end solution due to the nature of handling the entire management of field service from one end to the other. Ultimately, the more you can streamline your business with modern tools and software, the more you’ll be able to save on your operational expenses.
Watch For Sources Of Costs
Do you know where your funds are actually going for your small business? If you’re not careful, you could be losing money right in front of you. For retail businesses, be careful to avoid inventory shrink. The Global Retail Theft Barometer published by the Center for Retail Research found that North American retailers lose up to $45 billion worth of inventory from inventory shrink each year. If you notice that you’re starting to run into some financial issues with your business, take a careful look at what you’re regularly spending money on and try to identify the source of the issue.
The source of money issues can be practically anything to do with your business. If you are a retailer who loses the average 1.33% of your total sales, or more than that, to inventory shrink, you should investigate where the shrinkage is occurring. Is your staff making clerical errors or is there more theft taking place in your business than you think? Try to invest in solutions, like security systems, to solve these problems. Inventory shrinkage can also occur when goods are lost during transportation. As the value of freight moved in the United States is expected to increase to $1,377 per ton by 2040, it’s important to ensure that all of your valuable goods are making it to where they’re meant to. If they aren’t, consider switching your freight shipper.
Running and affording a small business can be a real challenge, but small businesses are incredibly important to the local economy. According to the U.S. Small Business Administration, small businesses created 8,971 net jobs in Alabama in 2014. And, in fact, 94% of all Alabama businesses were small businesses. Use these tips to stay financially afloat with your small business and work towards a successful career.