Four Unexpected Financial Scenarios That Happen to All Successful Businesses January 5, 2017Expert Blogs, FeaturedOff

When an entrepreneur imagines business success, she sees all the tiny cogs of industry moving perfectly in sync. Customers buy products, employers provide services, and cash moves easily from one account to another with no interruption. The fantasy success is so sure, she could walk away and the business would continue to be profitable.

Unfortunately, success rarely looks like that. Even when business is good, you are bound to experience a few financial challenges that require immediate action. The following four situations will likely occur at one time or another during your successful business’s life, so you should be familiar with how to overcome them before they cripple your finances and sink your brand.

When Sales Are Good But Cash Flow Is Off
Of all the intricate business processes you must manage, cash flow is arguably the most difficult to master. Optimally balancing the money coming in with the money going out is surprisingly difficult. Ideally, you will have enough money to cover your operational costs, as well as some for potential emergencies and a bit leftover to foster growth. However, if you have a slow month or more than one financial surprise, your poor cash flow could cripple your business ― regardless of the strength of your sales.

To survive this financial scenario, you should consider factoring your receivables. A factoring company buys your unpaid invoices, providing you with immediate cash and relieving you of the stress of waiting for clients to pay. Then, you have the cash you need to stay afloat until you understand where your cash flow is imbalanced. Perhaps you allow too many clients to use net 30, 60, or 90 deals, which can lengthen the time between providing the product or service and when you receive payment.

When Sales Are Down But Demand Is High
Hopefully, before you opened your business’s doors, you performed sufficient market research to determine that your products or services would in fact sell. Still, even if all signs pointed to an outstanding business concept, you might not see the sales you expected ― despite obvious demand.

In this case, you probably aren’t competitive enough in the market. Your business’s potential customers are being won over by your competitors, which means you can’t make the sales you need to survive. There are a few ways to combat this situation and increase your sales:

  • Marketing. If your business is new or tiny, it’s likely your customers don’t know about you. Develop a marketing campaign that will draw customers to your business.
  • Price. It’s possible that your prices are too high, compelling customers to find more reasonable rates elsewhere. Lower your prices to remain competitive in your market.
  • Quality. On one hand, the quality of your products or services might be too high, driving your prices above what your customers want to pay. On the other hand, your quality might be too low, causing customers to look elsewhere. Perform more research to determine whether you should alter the quality of your goods

When Accounts Are Empty But Business Is Booming
When you need supplies or equipment to keep up with your runaway sales, the worst thing you can have is an empty bank account. This is another cash flow–related problem, but rather than lacking sufficient funds to pay your bills, you need more cash than you are earning to expand your business and maintain growth.

Though invoice factoring might be a solution for some businesses, others might prefer a merchant cash advance in this particular instance. This cash infusion comes from merchant services providers, which will earn it back over time by skimming from your credit and debit transactions. However, interest rates can be extraordinarily high with merchant cash advances, so it is imperative that you only take an advance when you are certain in your ability to pay it off fast ― i.e., when your business is explosively successful.

When Accounts Are Full and Spending Is Low
In personal finance, not only is it not wrong to have fat savings accounts and low spending ― it is preferable. However, in business, when spending is low and savings is high, you have a real problem. The object of business is to make money, and as the saying goes, you must spend money to do that. A successful business can become stagnant and starve when spending stops, so it is important that you remove that dormant money from your business accounts and start doing something with it.

If you aren’t sure how to spend your cash to improve your business, it might be time to revisit your business plan. You should create another plan for growth and expansion ― perhaps into wider regions or different markets. Unless your money is working for you, it is worthless for keeping your business alive.

Photo by LDprod | Shutterstock

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