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Every small business needs finance initially, which has been observed as the biggest obstacle while starting the business. Besides gathering funds, the critical aspect is to implement productive and financial budgeting strategies that can help your money go a long way. And challenges become more invasive when you are consistently bootstrapping, investing your saving in business for developing it.
So how can you get your money to make more money?
As compared to 2012, the UK startup activity in the first six months of 2013 has increased by 3.4%, which are more than 90,000 new ventures. With this ratio of business creation, it was evident that many small businesses will fail.
To avoid this, you need to steer out of financial mistakes by staying focused on your financial statements because there’s nothing worse than your business losing more money than is required.
Today according to researchers, 49% of small businesses start their business with a capital of £2000, which is a seemingly shocking feat.
But there are effective ways to avoid extra costs, which are mentioned below:
1. Growing for the sake of growth
Every business owner has a myth that road to success is the growth of sales as they find it an appropriate solution to all their problems. However, growth is not similar to the capitalistic success.
In fact, dwindling the number of products or product line is typically the best route to drive profits and higher returns.
You need to focus on your marginal accounting for better returns, so avoid random pricing to all the products as it will directly affect your overhead cost. However, a direct increase in overhead cost can lead your business in great trouble. It should be cut down over the time.
Another factor that contributes to the better growth of the small business is break even accounting. A break-even cost is a stage at which revenue equal costs. Therefore, take a better look at your labor costs, and variable costs.
When the sales volume increases to absorb all variable cost as well as the chunk of the fixed overhead cost, you reach the break-even point. Then the margin of additional sales above the variable costs adds to the profit. Thus, small business accounting can be robust to manage, but once you are above all the factors, you reach your desired goals.
2. Inadequate product cost
What happens is small business owner usually become blind when their products hit the top list in the market, and they start launching more new product lines. And here is where the actual trouble begins!
It becomes quite challenging for entrepreneurs to price each product, however, if they consider all the overhead expenses as a variable, pricing becomes easy. Therefore, senior managers should better understand the way to interpret their cost accounting efficiently.
And it is advisable if one considers shrinking strategy because it is beneficial. If you want to eliminate the complexity of your business then downsizing your firm can be of great help. In this way, you can separately price a group of product line so that you can gain better profits.
3. Gearing operation to the income statement
This is one of the most prominent mistake entrepreneurs make in small business accounting. They keep on gearing the activities of the income statement and completely ignoring the balance sheet.
And ignoring your balance sheet can create havoc in your business. Because with inadequate knowledge of cash flow of the business, you cannot stabilize your financial position. Hence, smartly analyze your financial statements.
What is all included in cash flow?
- Accounts receivable- Streamlining your collection process is of utmost importance to reduce bad business debts. Thus, following-up with your debtors critical to enhancing accounts receivable process.
- Accounts payable- Every business has to purchase raw material, which is usually on debts. So paying your bills on time is highly crucial to reducing your liabilities.
- Inventory management- Having a track of your inventory items so that you won’t suffer from heavy waste products or unable to fulfill customer demand. Keep a hawk eye on your inventory and thoroughly go through the books.
- Fixed Assets- Well, being a business owner, you might have invested in fixed assets that include machinery, land, building, property, etc. Thus, depreciating them every month is vital to get the right value once you sold out these assets.
- Liabilities- Don’t forget about your liabilities! Try to repay your capital as soon as possible, whether you took a loan from bank or relative or using your own saving repaying is the best way to keep yourself stress-free and then focus on other growth factors of the business.
Being small business owner streamlining your books at the initial phase is indispensable to stay consistent in the market for a long run. Thus, work smart, put your efforts in the right situation and become a real winner!