No one would want to invest in a poor returning business and running out of cash comes as one of the major reason why most start-ups and SMEs fail in business. Entrepreneurs are risk takers however, measures should be put in place on how to manage and minimize risk, and today we will talk about managing financial risk.
Don’t go in the Wrong Business
To begin with, some entrepreneurs often go for a problem not worth solving, an idea the target market isn’t ready to spend money on. This goes on also to setting up a business against the culture of the community you are to operate in, that’s being in the wrong business. Besides the market, we have to go for businesses that we understand, we love and we have a long term vision for. Read the article the right business for yourself. In business you just can’t go against the trend, you will sink. You wouldn’t want to invest your money where return isn’t guaranteed, and being in the right business, minimizes financial risk.
Inadequate cash flow
One of the key to success in business is to make sure that you have cash to sustain operations in the short term and revenue and or profit in the long term. Some young entrepreneurs rarely consider the revenue or sustainability part due to various reasons. Having a revenue generating model in business increases your chances of survival hence it’s wiser to have one even from the beginning, or else you will lose money in the long-term. Also read on: a focus on the canvas business model and some business models to consider in Zimbabwe
Poor financial management
Poor financial management comes also as a contributing factor to financial loss. Good financial management is made up by keeping all financial records, separating business from personal funds, not making unjustified withdrawals, budgeting and cutting unnecessary costs. At some point, as the business owner you should survive on a small salary that will only cover for your needs. It’s a phase it will pass. A business should develop a culture of investing so as to strengthen its balance sheet, without a strong balance sheet, any shock in the market you run out of business. In business, be the intelligent investor, explore emerging markets in line with your objectives and diversify your portfolio.
Poor market research
Before getting into any business, proper market and product research should be conducted. This helps you ascertain if the industry you are going to penetrate in, is growing or dying. The digital space has seen a number of traditional business close and you wouldn’t want your venture to face that. You also need to research on the demand of the product, not being able to move stock is equal to loss and not meeting the customers’ demand brings in frustrations. A proper product research may tell you demand trends and the right pricing strategy for your business as well. Be sure of your target population as well and establish a price that they will be comfortable with paying.