Six Real Money Problems Most Start-Ups Will Face

Anita Ginsburg

October 09, 2014

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For ambitious entrepreneurs attempting to realize their business idea, a bevy of issues arrive during their path to success. Managing cash flow serves as one of the top obstacles for emerging business innovators that owners need to resolve. Below are some of the most common reasons entrepreneurs face a cash crunch.

High Expenditures

This is one of the most common situations that arise especially when trying to recover the initial costs of starting your business. At the same time, control your costs efficiently and you should be able to recoup your investment within three years. If you are unable to accomplish this, you either have a problem with controlling your costs or your business simply may not be profitable.

Excessive Overhead

This tends to be a serious impediment for health cash flow in your business. Hiring too many people or contracting unproductive assets usually explains this problem. In addition, consider employing digital tools rather than traditional brick and mortar components for your enterprise. This often can save you money and better help your business grow. For example, an online shop is much easier to manage financially than a physical one that requires a rent payment.

Poor Pricing

This is a common tendency among new small business entrepreneurs as they attempt to establish their brand in the marketplace by offering the cheapest pricing to attract buyers. This needs to be done carefully, though, as it may erode all of your profit. If you have not maintained a sufficient profit margin, you may end up losing it even if you experience high sales volume.

Bills

Make it a practice to pay all your bills on time, yet don't pay them too early. Some entrepreneurs consider it a status symbol for their business to clear their bills as soon as possible, but an astute executive pays their bills just before their due dates only so that they ensure cash is available a little longer in the business.

Debts

Non-paying or late-paying customers are lethal to the health of small businesses. You should allow credit only to reliable customers that you trust. Asking for references before extending credit is not a good practice. Moreover, you should follow a fixed debt collection schedule. Debt can also become a major problem when businesses spend more than they should. This can be due to many factors, including too many employees from spending too much on advertising. Whatever the reason, it's important to consider talking to experts about debt consolidation to get back on track.

Discounting

Discounting is a common competitive practice that can be effective when attracting new customers. At the same time, too much discounting runs the risk of eroding your profit potential and the long-term livelihood of your enterprise.

While these can be serious financial problems for any business, being diligent and aware of the needs of the business can prevent major money pitfalls.

Informational credit to Paddon & Yorke Inc.