Financial Problems in Small Businesses – And How to Combat Them

Sometimes that great idea is not enough to make ends meet.

Many small businesses must close their doors because of a lack of finances. In this article, I am going to share the financial problems small business owners face with advice on how to combat them.


Not having a business plan

From my experience, only business owners that require outside funding compiles a comprehensive business plan. Every business owner should take the time and effort to compile a comprehensive business plan, it is worth it. This plan includes financial projections, start-up costs, operating costs, taxes, other administrative expenses, emergency expenses, and estimated revenue. From this, you can determine if the plan is viable or if some tweaking is needed. This plan is a working document and needs revisiting when circumstances change.


Poor Marketing

Marketing is the starting point of all sales. If the customers are not doing business with you, they are doing business with your competitors. Marketing can be done on a shoestring, be creative, and use free resources like Google My Business to list your company. Partner with a reputable networking organization in your area to get the word out there.


Start-up delays

Depending on the type of business you can experience a delay in the issuing of licenses and permits. Do your homework (part of the business plan) before the time so that you can be aware of the time and processes involved in issuing the required licenses and permit.



In the beginning, the sales may not be enough to pay for all the expenses. Maybe the family member who promised to help you or the investor decides to withdraw, and external funding is required. Again, the comprehensive business plan can assist you here. Different funding options are available. Choose one that matches the length of the project in other words, long-term finance for long-term goals.


Too much debt

Relying on business or personal credit card debt can place an additional burden on the business and yourself. Be careful to overextend yourself and the business with too much debt. Debt needs repayment and this repayment to not influence the profitability (only the cash flow) of the business. You can be surprised with a tax bill even though you do not have cash flow.


Business owners living out of the business

Business owners do not separate their finances from that of the business. This habit is detrimental to the cash flow and the value of the company and your credit record. I agree that sometimes business struggle to make ends meet and this impact all aspect of the business owner’s life. Determine your needs, not wants at first, and pay yourself a salary. If you cannot afford the salary, let it be the motivation to start with your marketing strategy to make more sales.


Afford quality staff

Due to financial constraints, you are forced to hire less skilled and competent workers. Usually, the first person to be appointed is someone to assist with the administration function of the business. Look out for a school-leaver that wants to gain experience or study towards a qualification in the industry. Partner with a business centre in your area that provides administrative services at a minimal fee.


Not budgeting

In the beginning, you will not have historical data to compile the budget, but the business plan can guide the expected revenue and expenses. Unexpected expenses are always, well, unexpected, but with careful budgeting, you can put money away in an emergency fund. Buffer yourself and the business for emergencies with a proper insurance plan. Make sure to pay your suppliers on time. Without suppliers, you do not have a business. You have taken the effort to compile a budget, now stick to, analyze, and revisit the plan regularly. This working document should have an icon on the desktop and not be tucked away in some folder.


Inconsistent cash flow

A single bad month can spiral the business out of control and you can struggle to gain stability. Cash restraints can also influence the ability to take on a calculated risk or an opportunity to grow the business. With a well-prepared cash flow forecast, you can plan for such an event. Your customers must be clear on your payment terms. Sometimes we get so carried away with all the things that need doing that we forget to invoice; invoicing must be a priority as well as following up on the outstanding debt. Make it easy for your customers to pay you. Cash flow is the lifeblood of your business thus focus on the cash flow first then the profit.


Not appointing an accountant

Although you think that you cannot afford the services or that you can do everything yourself, the benefits outweigh the cost.  An accountant can assist you with the required statutory requirements. You can obtain advice on how to implement a financial system in your business or outsource the financial function. An accountant can also assist with the analysis of the financial information, like determining trends to build into your cash flow plan, thus enabling you to make timeous decisions.


You have taken the big step into the world of owning a small business and it is not for the faint of heart. If you are like me and cannot bank on luck, opportunities will pass us by if we are not prepared for them by having a plan to take advantage of the opportunity.


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