How do you measure success in business? There are tons of factors to look at in order to have a satisfactory answer: the number of employees, its impact on society, how it meets its purpose or the financial gains it acquired through time.
Although the things mentioned above are all valid, the main tenet of a business is its ability to become profitable; it’s a practice of making a living after all.
Entrepreneurs venture into business to achieve financial success. If you think about it, it’s totally doable. Howard Schultz of Starbucks, Do Won Chang of Forever 21, Larry Ellison of Oracle, and hundreds of other individuals did it despite growing up dirt-poor.
And while these rags-to-riches stories serve as inspiration for a lot of entrepreneurs to thrive, countless end up failing. Many fall flat from doing the common mistakes business owners make when they start small, but the main problem boils down to a lack of solid financial strategies to stabilize a company.
A 2016 study on business failure experiences, reveals that lack of financial skills is one of the leading reasons why companies fail. A participant shared, “I think our inability to calculate the costs accurately and perform financial controls properly spelled our death”, which echoes the need for not only financial readiness but financial literacy as well in doing your business.
Not-So-Fun Fact: 50% of small businesses fail after 5 years in business; 75% fail after 10 years. And while this sounds like a threat to hopeful entrepreneurs who want to make it big in the market, this is also a reminder to become more financially aware in running your business.
Financial planning is an important work to do not just in businesses but contemporary living as a whole. And so, learning the simple ways on how to properly manage and utilize your resources for efficiency is key to success.
If you’re an entrepreneur (or an aspirant) fighting for your business to succeed, read on to know easy financial rules you should master:
- Don’t Overspend or: Learn To Spend Less Than You Earn
Although avoiding overspending seems like more of common sense rather than an actual piece of advice, it’s actually harder to do than you think.
A lot of small businesses start with very little financing. While this is something you can be proud of when the profit starts coming in, this can easily lead to tragedy without the proper knowledge and planning.
Small financing also means that your resources are limited and you would be likely to put more work and time to grow and expand. So, when you get tired and paying or investing in an enticing new element to add gets easier, opting for a reasonable choice should be the go-to.
At the end of the day, in looking at business ventures as a gamble, you would want to spend only what you are willing to lose.
- Monitor Your Financial Transactions
Bookkeeping is a common thing that is often overlooked by a lot of small businesses. Starting small with little financing does not mean that you should skip accounting for every small expense you make.
It’s important to keep yourself updated and record how money and resources flow in and out of the company. This does not only help you to be more aware of your status, but it also helps you analyze and plan for your future goals.
Treat each expense as a piece of data to use to learn more about how you progress with your financial strategies – do you need to cut down on some resources, re-work your budgeting, or allocate more funding to some departments? Bookkeeping will help you make smarter and data-driven answers to this question.
Lastly, this also lessens the headache and stress that come with tax filing. When you work for hours trying to find information from purchase histories or past transactions, you will realize the importance of organizing and filing them beforehand.
Keeping tabs on your expenses is a simple yet effective way to work faster on meeting deadlines and more efficiently on data storage.
- Don’t Rely On Loans
Starting a business requires a lot of thoughtful actions and processes related to financing. Making your idea come to life with the help of investors and lenders is never wrong. In fact, this shows how promising your idea is and how people trust you to succeed.
And while loan opportunities are widely available for you to optimize and improve your operations and grow your team, you need to be able to know when to step back and take things slow. Before borrowing money, ask yourself questions like: How important is this for the company? Will I be able to pay back on time? How much gain will I get from this amount of money?
In the long run, over-reliance on loans can lead to serious consequences that can hurt not only your business but your personal financial stability as well. Apply for loans that you can guarantee to pay accordingly and that will greatly benefit your company. Or else, you will end up with debt regret.
- Start an Emergency Fund
Venturing in business is a gamble. This was already mentioned above, but it’s important to put emphasis on the unpredictable nature of the industry. Although rigorous research can be conducted upon starting a business, unexpected events can easily put these to waste.
The global economic turmoil brought by the pandemic, for example, was not something experts foresaw 5 or even 3 years ago. As a result, thousands of companies failed to survive.
It may be disheartening to see companies shut down left and right, even the ones that are considerably “big”, but this event shows the importance of preparedness in different circumstances in business.
What would happen if investors stopped funding? Or banks stopped lending? Or customers stopped paying? We may consider these issues temporary but how are you going to keep your resources when faced with similar challenges?
Ultimately, allowing your company to have the financial resources to adjust to changes is something you should consider in the long run. Not only does this show your ability to think proactively, this also shows your consideration for the future of your company and your people.
- Think Long-Term
Having long-term goals is synonymous with allowing your business to succeed. A lot of entrepreneurs put a lot of effort into crafting these goals but in reality, it’s easier to get stuck accomplishing day-to-day tasks and immediate matters than to constantly think of the future.
Thinking about the future is seeing the bigger picture. It’s thinking of everything you do each day as a contributor to your growth in the long run. People get caught up solving minor and temporary issues and forget that there is a bigger goal to achieve.
It is, of course, essential to consider all aspects and the littlest details if you want to be a more observational leader for your team, but keeping your eye on practices that will bear fruit becomes a motivation to work harder.
Constantly study and learn from projections, prepare your taxes, look into investments, have a retirement and/or a turnover plan – these are the things you should also think of on a daily.
If you treat your business as something you should nurture over time, you won’t have to constantly worry about uncertainties that will come your way. All you have to do is watch it grow.
Key Takeaway: A Simple Road to Success
The saying “learn from your mistakes” is a positive and motivational approach to failure. Failing can be a scary thing to experience, especially if there’s a lot at stake. And so, finding out ways to avoid failing is an easier path to go through.
While it is true that doing business is a trial-and-error process, it certainly won’t hurt to skip the common financial mistakes entrepreneurs make. There are many proven and tested ways to succeed and all you have to do is learn how and when to incorporate them into your processes.
The failure rate for small businesses is high and no entrepreneur wants to be part of that high percentage that collapses. Starting with simple things like mindful spending, bookkeeping, cutting down on loans, having an emergency fund, and considering long-term planning are great and helpful ways to overcome financial struggles in the future.
Being in an industry where money and assets are highly involved, it is only right to be more considerate and knowledgeable of every financial decision you make. As you master these easy practices towards financial stability, you’re putting the welfare of your business to safety.