In today’s era of sophisticated IT solutions, launching a startup has never been simpler.However, having an awesome business idea is not enough for you to survive. Here are few financial challenges that you'll need to overcome.

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The technological advancements and the simplicity of starting a business have made the entrepreneurial landscape crueler than ever. Statistics tell us that 20% of small businesses fail in their first year, while 50% of them die during their fifth year of operation.

And, one of the most common problems they face is maintaining the positive cash flow.

Fortunately, if you do your research on time, you can prevent this from happening.

With this in mind, here are a few most common financial challenges you may face once you start your business.

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Securing Funds for Growing your Business

When starting a business, you need to plan everything ahead. In the early days of your company, every loan you take out and every partnership you make may make or break your business. This is exactly why you need to be super careful. Now, you need to know that there is no perfect funding option. They vary according to your business’ growth and needs.

Let’s take bank loans as an example. This is one of the most popular funding options among startups. But, it comes at a price. Namely, to be eligible for it, you need to have a clean credit history, which is impossible for the majority of small business owners. Worse yet, it sometimes takes up to several weeks or months until they process your application and decide whether to approve it not. According to some recent studies, only 23% of loans are approved by big banks, while small banks accept about 49% of applications.

However, this shouldn’t worry you at all, as there are numerous alternative funding options that may work for you. For example, if your credit file is not that shiny, you can always apply for cash loans for bad credit and get your money at a very short notice. You can also consider selling invoices, crowdfunding or even partnering up with another company in your niche.

Your Cash Flow is Poor

​For every business, irrespective of its size, cash flow is a top priority. The reasons behind this are logical. To grow your business and allocate your resources to different aspects of your business adequately, you need liquidity.

The way we calculate cash flow is simple- you need to subtract your total expenses from total income. If the figure you get is positive, this means that your business is turning a profit and you’re good. On the other hand, if the resulting number is negative, this means that your business has gone into the red.

There are numerous ways to avoid that. For starters, you should consider changing your policy. You could seek an upfront payment, which would be great, but it’s also too risky and may drive your clients away.

You could consider setting a contract with your new clients. Here, you should define when they should pay you and clearly underline the consequences of late payments.

Your Sales are Rising, but your Profit is Unsatisfactory

Business expenses come in different shapes and sizes and it is pretty difficult to understand what your major money leaks are. If your sales are good, but your profit is plummeting, this may indicate overspending or some hidden costs that are out of control.

Here is how to prevent them from eating away your bottom line:

  • Build a purchasing policy to ensure that you’re getting the right materials at the most competitive price.
  • Analyze your expenses thoroughly and define your purchasing goals with a strict budget.
  • Make sure your policies, ordering, receiving, and reporting are supervised regularly.
  • Pay attention to your vendor selection and review old contracts to negotiate.

Poor Financial Management

For young and small businesses, building a detailed business plan is a must. It will keep you on track, helping you spend your money properly and mitigate all major financial risks.

However, managing all your day-to-day finances may be too stressful and time-consuming, preventing you from focusing on some other aspects of your business growth. Most importantly, if you don’t do it right, it may put your company at risk.

To manage your money properly, you need to be familiar with the basics of accounting, such as reading and analyzing your financial statements. You will also have to stay on top of every penny you spend or earn, which means handling a bunch of receipts, taxes, invoices, bills, and salaries.

Of course, doing all this manually is an enormous time waster. This is why you could invest in a cloud-based accounting platform that will help you automate your accounting efforts and manage your budget in real-time. And, as your business grows, it’s always a good idea to get a help from a pro. An in-house accountant will do all the hard work for you, from filling all the paperwork to paying taxes on time.

Over to You

Sometimes, we waste too much time worrying about the small stuff, that we completely forget to focus on what really matters. Your financial health is the foundation of your business’ success and that’s why you need to take care of it properly.

To mitigate the risk of going into the red, you need to analyze your cash inflow and outflow regularly, learn how to manage your finances on your own, and secure some extra cash in advance.

What are the most common financial challenges you’ve been facing?