Many of you will be familiar with the statistic: “One-in-three businesses fail in their first three years of trading”. It’s often when finances have been handled badly, whether it’s poor forecasting or poor cashflow management. Failure because of something as simple as poor financial management is a travesty, which is why I want to encourage you to evaluate how your finances are managed.
Recent research (taken across 500 start-ups less than five years old by Intuit) suggests that only 11 per cent of start-ups feel they handled finances badly in their first year. This leaves 22 per cent in line for a shock at some point in the next two years – how annoyed will you be if you’re one of those businesses?
You don’t need buckets of cash
Sensible forecasting, with reasonable targets and sales expectations, make the early years much easier. Do your research. Make sure your offering is beneficial, customers want it, it’s worth the price and – crucially – that you can get into the market.
64 per cent of survey respondents managed to maintain their businesses with less than £5,000 of start-up funding – so it’s not impossible!
Know how much money you have
Once your business is up and running you need to monitor your finances or pay someone to do it for you.
44 per cent of respondents either ran out or came to the brink of no money within five years of their launch. A further 20 per cent missed their payroll because of insufficient funds. This is just poor management of your finances – and it is avoidable.
An amazing one-in-three businesses made tax mistakes, and nearly half of these mistakes ended up with fines from HMRC. Can you afford costly mistakes such as these?
Time is money
One-in-ten business-owners stated they spend an entire day a week doing financial admin work. It needn’t be this high, if you get a structure and plan in place, so look at areas you can improve now.
Interestingly, a fifth of respondents use pen and paper for their financial record keeping. Even if you’re not using proper accounting systems (which are recommended and readily available), at least set up a spreadsheet document for your finances. With computer copies, easy manipulation and forecasting capabilities you’d be crazy not to.
Don’t let this deter you
This post is not meant to scare you off starting up. Starting up is one of (if not the) most rewarding thing you can do in business. It’s something to be proud of. Not to mention that over 99 per cent of the UK’s total number of businesses is accounted for by small firms, so they’re the lifeblood of this country.
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