3 Ways to Make Sure Your Business Won’t Run Out of Cash

Every start-up begins with
enthusiasm and energy, but
unfortunately a business
cannot survive on optimism
alone. Having enough working
capital is at the heart of
successful firms. In fact,
according to Bloomberg, eight
out of 10 businesses fail during
the first 18 months simply
because they run out of cash.
Here are three strategies to
implement to make sure your
company does not suffer the
same fate:
1. Fill Your Rainy Day Fund
This is obviously easier said
than done, but have a well-
stocked emergency fund for
your business is crucial. The
capital could come from
venture capital, bank lines of
credit, online financing
websites or from other forms
of creative fundraising, but set
a goal – say four months’ worth
of expenses – and search for
financing until you reach that
point. A small business is more
susceptible to swings in the
domestic or even local
economy, and firms need to
have reserves in order to
survive.
2. Be Overly Conservative in
Profitability Estimates
When starting your company it
is important to be realistic
about how long it will take to
turn a profit. Depending on the
type of business this can take
many months or even a few
years. Make a plan for how to
cover the business expenses
during this time. Once you have
made your best guess at when
your firm will become
profitable, double it just to be
safe because often
unforeseeable circumstances
will occur that slow your
estimates and you don’t want
to be scrambling for money
when people are least likely to
lend it.
3. Stretch Your Employees Before
Hiring More
As a business grows, the desire
to hire more staff may seem
more like a necessity, but think
again before sending out the
job postings. Examine your
firm’s growth path and if the
amount of growth truly dictates
more hiring. At the beginning,
all employees, including the
owner, will probably feel the
pain of being stretched thin in
order to handle all the
responsibilities, but it is much
better to have that kind of pain
than the pain of having to lay
off employees after realizing
your business cannot afford
them.