Why Do Small Businesses Face Financial Issues?
Starting a business of your own is a big dream of many people. They often plan to start their business as a small one, thinking that it will expand and become successful one day. Unfortunately, this plan does not work for many. The reason being the lack of funds for the growth of the business. The pandemic has affected many small businesses, and some of the businesses were forced to shut down due to the financial crisis. Some business owners have hired virtual accounting firms to find a way to deal with their financial crisis. Businesses are eagerly looking to cut expenses, and as a primary step towards the cost-cutting process, many have hired bookkeeping services online rather than paying an in-house accountant.
There are some barriers which small businesses have to face while dealing with funding capital. They are
1. No Community Banks
Whenever someone plans to start a business, they often go to small community banks as they have always supported small businesses. However, after the 2008 recession, the number of community banks have started to decline, and larger banks started over-shadowing the small community banks. The drawback of the larger banks was that they often showed less interest in lending loans under $100000. For starting a small business, the average amount needed is only $30000.
2. No Collateral Needed
Most small businesses are service-based that runs on a cash flow business model. Usually, bank loans are made against the company’s assets. However, if there is no collateral, small businesses do not meet the bank’s criteria for lending loans.
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3. Not Keeping A Budget
In a business, planning a successful budget is quite important. If you stick to your budget, you can achieve all your business dreams. However, the lack of the same can create many more debts and financial issues that you have never dreamt about. Sticking to the budget can help you plan wisely for your future, and it can also help you understand what needs to be changed when the business doesn’t go the way you have wished. Firms that deal with bookkeeping services online can help you prepare a budget that normally includes five elements such as fixed costs, one-time costs, variable costs, profits, and a cash flow statement. You can also keep some money as a contingency reserve in the budget, which can help in unexpected events.
4. Not Keeping The Necessary Reports
Irrespective of any business, it is important to record all the financial transactions with an accountant’s help. Poor or inconsistent record-keeping can put the business into a huge financial crisis. The businesses must record all the expenses, sales, and earnings. These records must be audited promptly. Showing incorrect amounts as revenue on the tax papers can lead to serious issues, resulting in a penalty, imprisonment, or both. Businesses must understand the value of keeping records. These days, there are many report generating systems available with bookkeeping services online that can offer real-time financial data analysis that can help businesses deal with financial issues.
5. Not Paying The Bills
When you are in a business, you would want to get paid on time. You need to understand that your suppliers, vendors, etc., also want the same. Occasional late payment can be forgiven; however, your business will get affected adversely when you make it a habit. The company’s financial health will be affected if you damage the supplier relationship by not paying them correctly. As per studies, most companies have an accounts payable team that manually deals with the processes. Such processes are prone to mistakes, frauds, and not to mention, time-consuming. If you hire bookkeeping services online, they will save time and money in processing the bills with the help of an automated system, which can benefit the company in the long run.
Financial challenges happen to all businesses; however, they can affect them adversely when it happens to small businesses. If they listen to their accountants and auditors, these financial challenges can be avoided, and they can lead a successful business. Read More