Businesses are the very heart of the economy. Small businesses often face many financial obstacles if not properly managed. This could be due to several factors such as, an industry that is seasonal in nature, or aging accounts receivables, cash flow problems, a lot of debt, bad relationships with vendors or lack of profitability or trouble paying taxes.
A well-managed business that maintains proper financial records and has proper controls can overcome financial struggles. But there may also be other major underlying issues that need to be addressed if the business is to survive. Some of the signs that a business may be facing financial struggles are:
1. Poor Bookkeeping: Bookkeeping is more than a record of previous transactions from your bank statements. Poor bookkeeping can affect future decisions about the company spending and growth. Not having proper bookkeeping could lead to serious financial problems such as over spending. It can also be used to cover financial improprieties, such as fraud. It is important to invest in a good bookkeeper to help you with regular bookkeeping that way you are aware of how your business is performing.
2. Cash Flow Problems: Almost every business will encounter cash flow problems from time-to-time, especially if their accounts receivable gets overloaded with late-paying customers, or diminishing sales, unproductive staff, excessive debt, or employee theft..
3. Trouble Paying Taxes: Businesses pay several taxes depending on where they are located, such as, federal and state taxes on business income, which are paid as quarterly estimated tax payments, sales tax and paying payroll taxes for their employees. If a business falls behind on any of these tax payments they can find themselves having to pay additional fees in penalties and interest.
4. Customer/Clients Complaints: Unsatisfied customers lead to delayed paid invoices and this contributes to financial difficulties. Customer satisfaction is important. Resolve the issue as soon as possible.
5. Overdrafts: Overdrafts and payments your bank declines to make can have negative effects, causing other payments to be missed or accrue additional charges, and also causing dissatisfaction with your vendors.
6. Bad Relationships with Vendors and Creditors: Not paying your vendors on time, or payments are returned insufficient can affect your relationship with them. If your business continues to miss payments with creditors, this will ultimately impact your business credit scores.
7. Failing to Pay Employees: When a business fails to pay their employees, or payroll checks bounce, it causes the employees to lose all trust in their employer. Failing to pay the payroll taxes is also theft, as employees will have to make up for the non-paid taxes when they file their own tax returns.
It is important that the business take steps to alleviate the underlying financial issues. It is normal for most businesses to occasionally feel a financial struggle at times. But a responsible business owner will take steps to manage their business finances. Sometimes business owners try to do it all by saving costs not realizing that finances are not their specialty. By focusing on their business product and service which is what they know best and investing in an experienced business accountant to help find the problems, and develop a plan to overcome the financial struggles will result in helping the business become sustainable and profitable in the long run.