Running a business is no easy task. In addition to various opportunities, business-owners are faced with a multitude of challenges along the way. Some of the most common challenges are often those related to finance.
Some business and finance challenges:
Insufficient cash flow
The golden rule when it comes to business finance is that the more cash flow you have, the healthier the business.
Once a business’ expenses exceed income, the result is a negative cash flow. This requires a fast turnaround strategy which will ensure improved cash flow. In this case, business loans or an overdraft can often help. It’s important to also consider that too much debt can sink a business permanently.
Having too much debt
High credit card interest rates and large loan payments can reflect negatively on business financial records. A business with too much debt raises red flags with potential creditors.
High Debt-to-equity ratio
This is a ratio of the company’s net operating income to its debt payments. A number of less than 1.0 indicates a negative cash flow. This ratio is used to guide better decision-making and is an indicator of a business’ health.
Lack of capital
One of the most common business and finance challenges, a lack of capital can often make or break a business. Business-owners need to determine how much money they will need for each phase of business and find ways of asking for it.
Lack of systems and processes
Developing efficient and effective systems helps to reduce overall costs. Business owners are also able to focus more on various aspects of the business once effective financial systems are in place.
A business that has no form of budget in place is doomed to face an uphill battle with gaining control of finances. Having a budget improves business functioning and gives direction towards a business’ goals.