Every business will have to tackle unexpected costs every now and then, but whether you are a new start-up or a seasoned company, dealing with these costs is much the same.
Start with Good Financial Sense
All businesses are essentially about making a profit. This means that in order to succeed, you need to make sure that your outgoings are less than your income – much as you would with your personal finances. As a business owner, this means that you need to keep track of your finances constantly so that you always know where you stand and what you need to be doing to make more money or reduce costs.
If you want your business to run smoothly, you should already be looking into a variety of ways to reduce your business costs day to day, anyway as this is a good way to ensure that you will be able to save and have room to grow later.
Have Savings to Dip Into
The best solution for unexpected costs is to use your business savings. In an ideal world, you will have saved around 10% of profits each month and put this money into a savings account for a rainy day. This money is perfect for moments when you come up short in a given month or if you have an unexpected payment you need to make.
Though there are lots of differing opinions on how much you ought to have in savings, if you use the same principle in business as you do at home, then having around 3 months’ worth of expenditure costs is a good minimum. However, if you are a start-up, it is unlikely that you will have this kind of savings already, so you will need to look into other ways to get your money.
Know Where You Can Get Fast Cash
If you don’t have savings yet, you will probably need to take out a loan to get cash fast. There are a variety of different loan types you can explore but choosing the right one will take some financial planning and some business sense. For a start, you need to be able to work out how much your loan is going to cost in total – including interest – and whether you will be able to afford to make the monthly repayments.
Many start-up companies don’t survive their first year because they haven’t managed to plan their finances well enough to begin with. If you want to avoid becoming one of them, sit down with your financial projections and do the math properly before committing to taking out any loans. For lots of businesses, taking out a loan is a good and practical solution, but you need to make sure that you are going to use the money smartly to make business more profitable in the long run.
Though you might intend to have a smooth running company, the reality is that this won’t happen unless you are prepared for the bumps and know how to deal with them.