Content of this unit
Financial risk
A poor financial position is one of the main reasons a business fails. Even if you get off to a flying start, how you manage money on a day-to-day basis will determine the longevity of the business. Mis-managing budgets, over-spending, mis-calculating margins and not accounting for tax could mean your business runs out of cash and fails.

If your business is running out of cash, you will need to re-evaluate how you manage the finances and even seek out investment if you’re willing to lose equity and partner up with someone. A frequent mistake is that businesses fail to reach their next milestone before the cash runs out, making it harder to get investment causing the business to fail.

In the early days of production, you as the business owner must play close attention to the finances and keep costs as low as possible until the business model has been proven. This means doing as much as you can yourself without paying for staff and delaying marketing and sales costs for as long as possible.

However, when the business model has been proven, and the product or service is ready to go, you need to consider how to market your business. This means spending money where it needs to be spent on sales and marketing. You will need to understand that holding on to every cent will not grow the business in the future. Establishing the difference between safeguarding cash and spending it is vital when managing the business’ financial risk.

It is vital you play close attention to the numbers on a regular basis to foresee any financial risks and deal with them accordingly. If you’re ‘not a numbers person’, hire someone who is before your business ends up in a money mess.