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Many people think starting a business is effortless until they step into the corporate world. However, from challenges with recruitment to launching new products – entrepreneurs face countless obstacles when starting a venture. Amongst all, financial challenges tend to loom as the biggest hurdle. Not only are business finances complex, but they are the engine of every operation. Whether it is incurring an expense or installing a plant, you need money to keep the business running.
However, most of the aspiring entrepreneurs lag in financial proficiency. Some face difficulty with record keeping and cash flows while others, can’t acquire funding for their startup. Likewise, many business owners encounter compliance issues because of inaccurate financial reporting. Before these things come between your entrepreneurial dreams, learn to manage finances effectively. Here we are listing five financial hurdles and ways to overcome them when starting your business.
Although innovative products lay the foundation of a promising startup, you need a steady flow of funds in the business to run operations smoothly. You have to raise enough capital to recruit employees, develop products, launch marketing campaigns, and purchase fixed assets. However, most entrepreneurs don’t acknowledge this or prepare a financial plan. They kick off their venture with a small amount of capital and encounter severe economic problems after a few months, putting the business’s survivability at stake.
Instead of letting these hurdles shut down the business, you can find ways to acquire funding. After all, there many new startup funding options available today. If you need a large sum of money, feel free to take out a bank loan. However, if loan acquisition seems arduous because of racial and community differences, explore your options. You can search for a black bank to obtain loans at the lowest possible interest rate. Alongside giving access to immediate cash, it will strengthen the business’s financial position.
When entrepreneurs open a startup, they run and manage operations on their terms. Indeed, they can enjoy autonomy, but it should not be at the cost of regulatory issues. Most business owners maintain incomplete and inaccurate records, thinking they are not accountable to anyone. Not recording transactions can have a snowball effect on companies. It will create discrepancies in the cash flow, impacting the income statement and balance sheet. At times, stakeholders also lose trust in the company because of such practices.
From purchase entries, expenses to additional income, you have to record every business transaction. It will ensure compliance with accounting standards and governing bodies, keeping your startup away from legal penalties. At the same time, accurate financial reporting will give you rich insights into the company’s financial performance. You can identify under-performing areas and implement strategies to overcome the shortcomings.
Undeniably, tax evasion is one of the growing concerns worldwide. Even registered businesses try to escape tax payments by manipulating their deductibles. Indeed, giving away a chunk from your profits isn’t easy, but every business must fulfill its tax obligations. Failure to do so can lead to extensive IRS audits and hefty penalties.
Another issue regarding taxation is the cost of compliance because calculating taxes and filing returns exhaust many resources. According to IRS, companies generating less than $1 million in revenue bear two-third of compliance costs. It might take a lot of time and effort to work through these issues, but entrepreneurs can always overcome these obstacles. In today’s savvy world, you can leverage an intelligent tax management tool to ensure compliance and file returns on time.
Despite making profits, businesses encounter varying cash flow problems. They cannot cover recurring costs, while sometimes, they don’t have sufficient cash to purchase raw materials and supplies. In addition to halting business operations, inconsistent cashflows pose a significant threat to the liquidity crisis. Hence, before this damage becomes irreversible, look for ways to improve cash flow. You can experiment with the payment process by encouraging debtors to pay on time.
For this, you can set convenient payment terms. Perhaps, you can offer a 2% cash discount if a debtor pays within ten days of the purchase date. You can also streamline the business’s payment process so that clients can deliver money faster. If your company only accepts payment by cheques, integrate additional payment models. It is good to set up an online portal to accept payments through PayPal, Apple Pay, and different credit cards.
What if inventory gets stolen or the new plant starts malfunctioning? Such unforeseen expenses can make things ten times more challenging for a business owner. In an accounting survey from Clutch, 35% of entrepreneurs cited unexpected expenses as the most substantial financial challenge. Even though one can’t escape from these expenses, you can plan for them. The leading finance professionals recommend building an emergency expense account to fund unanticipated expenses.
You can take out a small chunk from the monthly profits and add it to your business’s emergency funds. The amount of money you have to save depends on your business’s expense history. For instance, if you spend $100 for vehicle repair annually, add at least $200 to the emergency account. Besides this, you can cut back on business costs to deal with unforeseen expenses. You can cancel an upcoming work trip, scale down your marketing budget, or find a more cost-effective supplier.
Financial challenges are a significant reality of entrepreneurship. Business owners trying to establish a name for themselves often go broke in the process. Some incur losses while others are unable to manage finances adequately. Instead of letting all this break your spirit, find ways to overcome the financial hurdles. You can implement innovative cash management techniques, acquire funding, and ensure compliance to make your startup thrive.
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