Starting and running a small business can be incredibly rewarding, but it can also be incredibly challenging and lonely. Statistics show that the majority of small businesses don’t survive beyond their fifth year.
There are many reasons for this, including fierce competition, changing market conditions, and turbulence in the economy. However, one of the biggest reasons why small businesses fail is because of poor financial management.
Good financial habits are crucial for small businesses that want to survive and thrive in today’s fast-paced and busy world and unpredictable economy. Here are a few reasons why:
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Good financial habits help you stay on top of cash flow
Cash flow is the lifeblood of any small business. Businesses don’t fail because they make losses each year. They fail because they run out of cash. Without cash, you can’t pay your bills, purchase stock, or invest in new equipment or technology.
Good financial habits, such as keeping detailed records of your income and expenses, tracking how much customers owe and how much you owe suppliers, and regularly reviewing your accounts, can help you stay on top of your cash flow and enable you to make informed decisions about your business.
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Good financial habits help you make better business decisions
By keeping accurate records and regularly reviewing your accounts, you can identify areas where you’re overspending, undercharging, or missing opportunities to increase your profits. You can also use financial data to evaluate the success of your marketing campaigns, assess the performance of your products or services, and determine the best pricing strategies.
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Good financial habits help you manage debt and secure financing
Most small businesses need to borrow money at some point in their life, whether it’s to purchase stock, expand their operations, or cover unexpected costs. Good financial habits can help you manage your debt and secure financing when you need it. By keeping your financial records organised and up-to-date, you can demonstrate to lenders that you’re a responsible borrower who is likely to repay their loans on time. You can also use financial data to identify areas where you can cut costs and improve your cash flow, which can make you a more attractive borrower and potentially lower the interest rate you pay, something that’s relevant as we enter a period of higher rates than we have been used to.
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Good financial habits help you plan for the future
Finally, good financial habits can help you plan for the future of your business. By regularly reviewing your financial statements and forecasting your cash flow, you can identify opportunities for growth, anticipate potential challenges, and make informed decisions about strategy and initiatives to help your business achieve its goals. This can help you build a more sustainable business that can weather the ups and downs in the economy.
In conclusion, good financial habits are crucial for small businesses that want to survive and thrive in today’s more complex world.
By staying on top of your cash flow, making informed decisions, managing your debt, and planning for the future, you can build a strong financial foundation that can support your business for years to come.
If you are interested in learning how good financial habits can help you succeed you may be interested in our Business Lab workshops.