When you’ve run your business a certain way for a long time, you may not stop to question the routine anymore. But that doesn’t necessarily make it the proper way to do business. If you’re like most small business owners, certain aspects of how you’re running your business may be creating cash flow problems. And if you’ve been drowning in these issues, you must act quickly to stave off bigger problems that you might not recover from.
Too often, business owners take a “heads down” approach and churn away, waiting for the mythical upswing in business. You can’t rest your dreams on the hope that more sales will be rolling in tomorrow. But, you shouldn’t take wild measures, either. You must take a calm and measured approach to fixing the cash flow problems that are threatening your business.
Below are some of the most common expenses and financial “approaches” that wind up hurting you in the long run:
- Paying for employees you don’t need
It’s time to take a hard look at whom you pay to work for you. It’s never easy to let someone go, particularly if you’ve become close after years of working together. In many cases, employees who are brought on for a specific reason eventually are no longer needed (or scarcely so) and don’t provide the value that their wage demands.
By keeping these people on the payroll, you put every other employee, as well as your small business, at risk. If you’re able to reduce your employee count, it’s better to do so earlier rather than later.
- Incurring expenses that don’t drive profits
Every business has three kinds of expenses: fixed, variable and discretionary. Fixed expenses are needed to “open the door” each day. Variable costs generally fluctuate with sales volume and are needed to meet greater demand. Discretionary expenses, however, have no direct relationship to your income.
These expenses need to be examined – ideally with someone without bias, such as your small business consultant or advisor. He or she will continually ask, “Why?” and push you to trim the unnecessary fat that would otherwise cut into your cash on hand.
- Abusing credit cards
Stop kidding yourself about your credit cards. Sure, there are reports of fabulously successful owners who financed their small business using credit cards. But, while these few examples make headlines, millions of others fail with this approach.
It’s too easy to spend like you’ve got the cash on hand when paying with a credit card. Operating on a cash basis helps you avoid spending what you don’t have and using what is typically intended for consumer credit.
- Are expenses your real issue?
You can only achieve so much by cutting costs. At the end of the day, a good business makes money. If you’re having cash flow problems, the root cause could be that you don’t have enough money coming in. You need to boost sales.
This doesn’t mean you should do something crazy to try driving up revenue, though. The way you earned your original customers is likely the way to bring in your future customers.
Take a strong and honest look at your cash flow and make the necessary changes now. It’s always better to make the difficult decisions today than to find yourself with no option later on. While these may be expenses you’ve sustained for some time, you can’t expect to remain in business long if you continue to put your cash flow at risk.
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