8 Tips on How to Avoid Financial Disaster in your Business

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You are a business owner and you are very competent in what you do; perhaps selling, marketing, engineering or product development. The outlook is fine but things are not running as smoothly as they did a short time ago.

You took the decision to market your business more aggressively and since that time, small distractions keep happening that cannot easily be explained but they need your attention to resolve.

But what steps can you take to give you greater comfort?

If you are a business owner and you are experiencing a financial disaster in your business, here are 5 tips on how to avoid financial disaster in your business.

  1. Control your Business

Be sensible, practical, but above all else know what is happening in your business. So often owners think they know, but through a lack of understanding, the use of incomplete or inaccurate information, wrong or ill-timed decisions are taken. Some business owners opt out completely and take no decision at all.

Control your business by ensuring that:

  • Good management and accounting systems are in use.
  • All information on which you base your decisions is accurate, if in doubt have the data audited.
  • Short and long term goals have been set
  • Financial information is prepared in a timely manner and at regular intervals
  • All management information is reviewed in a timely manner and when necessary corrective action was taken

As an entrepreneur, you must know the in and out of your business so as to be able to manage your bookkeeping.

  1. Be Honest and Realistic in your Decision Making

If the data upon which you are taking business decisions is suspected, the business decision-making process should not be taken seriously again.

Further remember what you are in business for – to achieve your goals, your vision. Your goals will be more difficult to achieve if the quality of the data used to base decisions upon is suspect.

You must discipline yourself to:

  • Write off bad debts immediately
  • Write down the value of obsolete or slow moving stock in the Balance Sheet
  • Record incomes in the correct accounting period
  • Record expenses in the correct accounting period
  • Be honest in all financial matters.
  • Remain focused and take decisions that only support meeting your goals.

Be honest and realistic in your decision upon these items mentioned above.

  1. Reconcile your Cash

Know your cash balance at all times. Cash is the lifeblood of your business. Do not let it drip away in waste.

Forecast your cash flows on a regular basis and be in control and manage your cash position.

Conserve all cash and recognise the dangers of spending cash on items that are not necessary for meeting the goals of the business, buying new when a second hand would suffice, structuring incentive schemes to sales instead of cash and profit.

  1. Re-engineer your Processes

Frequently business systems remain unchanged for long periods, become outdated and fail to satisfy the demands of a changing business environment.

This shortcoming is often found in administrative as well as manufacturing processes. Over time processes cease to be appropriate, are tweaked to accommodate changing environments and result in inherent waste.

Review and benchmark your processes to avoid unnecessary work that does not add value, work duplication that constitutes waste, standalone systems etc.

  1. Involve your Employees

Often it is quoted that employees are the greatest asset of a business. But also it is found that in some organisations employees are not always respected, involved with or empowered to participate in the decision-making processes of the business.

Train your staff and delegate responsibilities in a controlled manner, involve the appropriate staff in decision making.

  1. Maintain High Customer Service Levels

Retaining customers is hard, winning customers more so. During a financial crisis, your customer service level may be adversely impacted. Be proactive and agree with the customer an acceptable level of service that will meet the needs and expectations of the customer during the period of concern.

Customers are more discerning and expect all service to be right first time, do not surprise them by falling service levels after failing to communicate your changed circumstances to them. Be proactive and manage the situation.

Take remedial action when adverse trends are recorded in the following areas:

  • Delivery times
  • Customer complaints
  • Customer returns
  • Warranty claims

Maintaining good customer service is one key to reviving a business that is going down financially and otherwise.

  1. Provide an adequate Capital Structure

An expanding business may require additional funding to sustain growth. Ensure that there is the potential to raise long-term funds for the business to enable financial stability and long-term planning to materialise.

  1. If all else Fails, Seek Expert Help

If you are unable to quickly resolve your problems – seek HELP. But seek help BEFORE the situation becomes a catastrophe. Time is money, and catastrophes are costly! Financial management consultants, banks and solicitors are examples of organisations that can help you.

The sooner remedial action is taken, the sooner normality is resumed and it will almost certainly be more cost effective.

 

To Your Success

Mukaila Ahmed