There are a more than a handful of people who go into business every year. There are a significant number of start-up businesses that are launched each year too. Sadly, more than half of these start-up businesses close only after a few years of operation. Start-up businesses help the economy in more ways than one. They push the boundaries of technology and innovation. They can provide products and services that big businesses rarely go into. Small businesses can create a market for what they offer, and that’s how they find success.
And yet, in Canada alone, only a little over 50% of all the startup businesses survive for more than one year. A fewer of those usually end up closing down. This brings experts to question – Why do small businesses fail within the first five years of operation? What could be going wrong? Here are some ideas you might want to ponder upon.
· Poor Management Practices
Although most business owners think that bankruptcy is the culprit to the failure of their business, the root of the problem isn't that. They fail to see that it is the poor management practices that led to bankruptcy that is pulling them down. Most entrepreneurs don’t have experience in running a business, which entails managing and directing the people. So before it is too late, plan. Build a management structure early on and work well with others to improve it.
· Negligence In The Company Finances
Are you too focused on making a profit? If you are, then you should think twice about what you are doing. Remember that the goal of every business should not be the profit but how to capture the market. Start-up businesses depend on investors to generate more funding. It can be quite easy to lose control, but you should always be grounded. Know the financial situation of your company and work things out from there.
· Poor Marketing Efforts
No matter how good your business idea may be, remember that it cannot sell itself. Don’t expect it to market itself and generate sales. The worst thing that a business owner can do is to come up with marketing campaigns that are not good enough for the target consumers. Without the right marketing, your consumers won’t be aware of the product or services that you offer. This is the reason why you are not making the sales that you expect.
Running a business isn’t easy, and it becomes even more difficult to pass the five-year mark. But knowing what you’re doing wrong is the first step to making it right.
Running a business is without a doubt challenging. You have to know the how to market the business, know the ins-and-outs of the law, and take care of your finance. For many newly born CEOs, getting a grip on the financials of the business is the biggest struggle.
So, here are 5 financial basics that you need to wrap your head around.
1. Cash Flow Management
You need to start cash flow management from the moment you start the business. The rest of your business financials depends on it. Cash flow management refers to the amount of cash collected in a period, and used by the organization in a set period. It can also help you prepare and better manage the money that your organization receives.
A good cash flow management takes a buffer into account, so that if your organization receives lesser than expected funds, you aren’t hanging out to try.
2. Cost of Production
You should know the exact cost of production, or cost of service. It includes direct labor, direct materials, consumable production supplies, logistic and factory cost. The financial success of your business depends on this.
- Your pricing will set your target audience.
- Your price will determine whether your organization makes a loss, break-even or makes a profit.
The financial challenge for you is to balance these two. A company like Amazon runs in loss by giving heavy discounts, but it works for its financial running.
So many CEOs start planning and building their team, product, and management system even before the company is founded. The problem here is that bookkeeping is missed. From day one, you need to have a bookkeeping system in place. Bookkeeping allows you to keep track of your cash flow. More importantly, CRA requires you to maintain records for the last 6 years. That brings us to the next point.
Whether it is a receipt, invoice, or bill, as long as it is a document related to your business, you want to keep it. Trust us – it comes in handy if ever there is a tax audit by CRA.
You need an effective bookkeeping system!
4. File your Taxes
Filing taxes is an obvious statement, but what isn’t, is being aware of the taxes you have to pay. If you fail to pay all the taxes that you owe the government, you risk a tax audit and hefty fines. Income tax, sale tax, EHT, GST, and HST tax are just some of the taxes you need to be aware of and find out if you need to pay them.
5. Hire an Accountant
Most businesses think about hiring an accountant only when needed, and often after the business has grown. An accountant is left to deal with misshaped bookkeeping, poor account records and other issues, and this can lead to a big problem in the business. Choosing an accountant from day one is the best choice because you know that your organization’s financials are in safe hands.
As CEO, your job is not to handle the finances of the organization, your job is to ensure that someone competent is managing it. Delegate it to the right person, those of us at ATS Accounting are effective and experienced to know what we are doing.
As we move into the fall season and the final quarter of the year, it’s a perfect time to commit to a project in your business that will help you reach the year’s end in better shape. Here are five ideas:
1. Back-to-School Time
If payroll expenses are one of the higher costs in your business, then it makes sense to boost your team’s productivity and maybe also your own. Fall is back-to-school time anyway, so it’s a natural time of the year to take on a course, read a business book, or hire an organizer to help you get more from your workspace.
If you spend a lot of time doing email, consider taking a course on Microsoft Outlook® or even Windows; learning a few new keystrokes could save you tons of time. If you need more time, look for a book or course on time management. Look for classes at your local community college or adult education center.
2. A Garage Sale for Your Business
Do you have inventory in your business? If so, take a look at which items are slower-moving and clear them out in a big sale. We can help you figure out what’s moving slowly, and you might even save on taxes too.
3. Celebrate Your Results
Take a checkpoint to see how your revenue and income are running compared to last year at this time. Is it time for a celebration, or is it time to hunker down and bring in some more sales before winter? With one more quarter to go, you have time to make any strategy corrections you need to at this time. Let us know if we can pull a report that shows your year-on-year financial comparison.
4. Get Ready for Year’s End
Avoid the time pressure of year’s end by getting ready early. Review your balance sheet to make sure your account balances are correct for all transactions entered to date. You will be ahead of the game by getting the bulk of the year reviewed and out of the way early.
Also make sure you have the required documentation you need from vendors and customers. One example is contract labor that you will need to issue a 1099 for; make sure you have a W-9 on file for them. If we can help you get ready for year-end, let us know.
5. Margin Mastery
If your business has multiple products and services, there may be some that are far more profitable than others. Breaking these numbers out to calculate your profit margins or contribution margins by product or service line can help you see the areas that are adding the most income to your bottom line. Correspondingly, you can determine if you have any items that are losing money; knowing will help you take the right action in your business.
Refresh your financials this fall with your favorite idea of these five, or come up with your own fall project to rejuvenate your business.