Any new small business mostly fail within the 1st or the 2nd year. This is mostly due to cash flow problems. In the perspective of small business, cash flow is the most important financial measure because it determines the value of small business, as well it determines its survival. This is vital in the present financial turmoil. Most small business owners do not have the priority and place importance of cash flow management. This is the major cause of failure of most of the small business in the 1st or the 2nd year of operation.
In the first palce for an effective cash flow management, is to have an accounting system, which monitor the cash flow and gives information of how much credit is neeeded and the comparative cost and expenditure and income side of business to control cost and ways to improve revenue and the cash collection period. If any new business do not have adequate resources to have an in house financial information system they can use public accounting firms to assist them to control their cash flow. As well, they must have clear quantiifable objectives and a business plan and a marketing plan and review them continually so that they can reduce their weknesses in business cost stucture and operations and use their strength in realtion to competitors to maintain market share and profitability. In addition, they also must consider e-commerce because it gives them international exposure and potential to earn income if they have an effective web site and it is marketed effectively. As the current market is mostly a global market may provide niche market sectors which can be profitable to a small business.
Small businesses also can get loans from specialized financial institutions, which gives them finance at a competitive interest rate and the selection of their financial institution is vital and their relationship with them. This enable them to have a growth plan and to meet any cash flow deficit in the short-term. This also will improve their creit rating and there fore enable the capacity to borrow funds at a competitive interest rate.
Financial management is very vital for small business particularly in the 1st and the 2nd year of operation. If they don’t produce adeqaute cashflows to cover cost then they may not survive and grow in the future. As mentioned above, if a small business adopts strategies to control cash flow and take sound decsions to improve cash flows, then they have more chance to survive in a difficult market condition as well can survive and grow in the future.