The initial days of an SMB can be very exciting but while the entrepreneur is high on an adrenalin rush, it is natural for a fear of failure to be always at the back of his mind. After all, it is no secret that more than half of all ventures fail by their tenth year. While there are many reasons why enterprises fail and not everything can be controlled by the entrepreneur, it still does not change the fact that success can be quite elusive despite the best of intentions and efforts. Most entrepreneurs are big on the vision of their transformational business idea and well clued up on the technology powering the product, however, the subject of finance is something they simply do not tend to understand and therefore are forced to deal with it as they go. Some of the principal concerns about financing that SMB owners should be aware of and ways of dealing with them:
Existence of the Market Opportunity
When an entrepreneur is contemplating a business venture, it is important to understand current state of the market and potential. He needs to be able to find answers to a host of issues like the profile of the customers. The need of the market for the product or service, the size of the potential market the business can address, the growth rate possible and many more so that they can provide the big picture that every investor demands.
When seeking funds, you should be able to answer perhaps the most vital question that investors will ask; how long will it take to get a positive return on their investment. It is vital that entrepreneurs take the time to understand the state of the market and have answers to the most important questions that will invariably be asked by investors. By conducting thorough research and asking industry analysts, mentors, potential customers, distributors, and even people apparently unconnected with your business, you can get enough information to validate the market potential.
Knowing How Much Funds Are Required
Entrepreneurs can ask very tough questions on the total amount of funds required but also how it will be spent. You will need to have answers to specific questions like the amount required for the manufacturing lines, the marketing and advertising spend, the manpower required for every function, the amount required for the purchase of raw materials and building the inventory, and more.
According to Entrepreneur.com, entrepreneurs need to prepare a thorough business plan with details of what the business does, its differentiator from the competition, and the primary markets the business seeks to target. It will invariably contain a market analysis, industry outlook, and potential market share that can be grabbed. Other details include an organization and management section that details the ownership as well as key management profiles and the marketing strategy.
Investors need to believe in your leaders, so if you are still in the early stages of your funding program, it is the right time to get together a team that is entrepreneurial and passionate, who can enthuse both your staff and investors by helping to answer tough questions, seeing opportunities from different perspectives, and provide support in challenging situations. It may help to explore all your funding opportunities before approaching investors. For instance, there are a large number of grants offered by organizations interested in developing the entrepreneurial spirit that can take the pressure off you. Click here to participate in EJ Dalius Grant for budding entrepreneurs.
Playing the price warrior in an intensely competitive market can be a dangerous game as your margins will be negative or very low in the initial stages when your main intention is to grab as large a slice of the market as possible. If you do not want to lead on prices, you will need a very convincing reason to convince the customers to pay a premium over the competition.
Getting the product pricing right can be quite tricky because you will not only need to remain competitive but also have to deal with unexpected expenses that can throw the financials completely out of gear. The only way to deal with low margins is to perform a thorough analysis of all the cost components and find out where you are performing under par and take steps to plug the leak. Be conservative and learn to prioritize your expenses and be careful not to mix business finances with your personal affairs. Put a proper automated accounting system in place so that you know the true picture at any given point in time rather than try to make crucial decisions by guesswork.
Cash Flow Mismanagement
Even with a brilliant product and booming sales, it is not uncommon for SMBs to fail simply because they could not manage their cash flows properly. Unless you implement a proper cash flow management system, you will be perpetually short of cash and will have to resort to unplanned and thus very expensive short-term debt to bail you out. There are no magic formulae to managing your cash flow; you need to learn by experience because what works in other sectors may not have any bearing on yours due to a combination of complex factors. Make cost-cutting and find out how you can speed up collections so that there is less pressure on the cash. Surprisingly, entrepreneurs get so bogged down with production and marketing issues that they are unable to send invoices on time. An automated invoicing system can be priceless.
Dealing with financial issues for owners of SMBs is not the easiest of tasks. Not only are there a large number of concerns but also the learning curve is very steep for first-time entrepreneurs. It is difficult to import solutions from other SMBs because financial problems are invariably distinctive and unique to each niche. The only way to ensure that the business venture can succeed is by exercising a lot of planning and forethought into every aspect of your business and not let passion color your vision.