Last month, I provided the heart breaking stats on the survival rate of small businesses. As a fairly new business start-up, we faced and continue to face similar challenges. As we mark our 5th year in business, I want to highlight the top 5 challenges we faced in our business and some of the steps we’ve taken or currently taking to address these challenges. These are real life challenges we faced over the last 5 years and we’re sharing our insights from our experience with you so you can learn from them and where applicable, apply to your own business. Our goal as always is to see you succeed.
Here are the top five challenges we will be diving into over the next couple of months:
Today, we will focus on cash flow issues and undercapitalization of your business. If you run a business you will agree that cash is critical to keeping your doors open. As they often say, cash is king! On the surface, it would appear that most businesses fail because they run out of cash. However, often times, this is not the primary reason for failure. Lack of cash is a symptom of other foundational aspects of the business that has been neglected, such as items 2 to 5 in the list above.
For us, we run a knowledge-based business so initial capital required to start our firm was not significant. Our major expenses when we started were rent, office furniture and computer equipment, professional practice insurance, software licensing and fees, professional development, advertisement and later, employee costs when we hired additional help. As a new business with very few clients, we had a lot more expenses than income and quickly depleted the initial capital invested by the Partners. So early on, we had to deal with cash flow challenges which did not get better even as we got new clients. We had to rely on overdraft from the bank to sustain the business. Today, we still keep a close eye on our cash flow and we continue to rely on our bank to fund shortfalls as we invest more and more capital in the business.
Here are some of the key insights we learned from our experience dealing with cash flow issues and capitalization concerns in running our business as well as what we did or currently doing to deal with this:
Hopefully, there are a few points from this that you can use to improve your business performance. Next month we will look into another core area of running your business – building a proven pipeline for generating new business. Stay tuned!
1 comment. Leave new
Very well articulated. Thanks for sharing