Entrepreneurs face many obstacles to succeed, and chief among them is money management, according to The Entrepreneur”™s Source.
About 50 percent of small business owners run into cash flow hurdles and use personal credit cards to finance operations in order to compensate for a lack of funding or revenue, said Dennis Krieger, Mamaroneck business coach for The Entrepreneur”™s Source.
The Entrepreneur”™s Source is a career and business coaching company with more than 250 offices in the United States and Canada.
One of the main reasons new small businesses face financial trouble is because they don”™t capture pertinent data accurately enough, Krieger said.
Examples of such data include how much a business is spending on goods and IT systems, and performing competitive analysis surveys.
One such examination Krieger could perform is a “gap analysis.” This entails doing studies like comparing how much a particular business spends on advertising compared with the rest of the industry.
“If everyone is spending 20 percent on advertising, and you”™re spending 10 percent, that”™s the gap,” he said. “That gives you a benchmark on how much to spend.”
The business could then figure out if it is targeting the wrong media to advertise in, or potentially the wrong customers, and remedy the problem, Krieger said.
The U.S. Small Business Administration states that cash flow management is probably the most frequent problem for small business owners.
Watching the cash inflows and outflows is one of the most pressing management tasks for any entrepreneur, said Krieger.
However, Krieger said a business owner must know the best sources for meeting additional cash needs and keep good relationships with those in finance, such as bankers and other creditors.
One such way to do that is to take out a loan or line of credit when you don”™t necessarily need to use it.
“A lot of people don”™t think of this,” he said. “The best time to get a loan is when you don”™t need one. You want to get a line of credit, use a little bit and pay it back every so often. Even if you don”™t need to use it, borrow it and pay it back and you will increase you”™re future line of credit.”
He said a reason many small businesses fail is because they run out of money before they learn how to properly run their business.
With a line of credit already established, business owners can dip into that during a lean period, he said.
Companies often expend more than 50 percent of their revenues purchasing goods and services; therefore, managing these costs well can have a direct impact on increased profitability.
