Financial Issues in Business

Businesses, like people, need to manage their money carefully so as not to put themselves into difficult financial straits. Surprises do happen though, ranging from the awkward but fairly minor "I left my wallet at home" to a more substantial "I have a large bill due and just don't have the cash to pay for it." Be aware of the types of financial problems in business that can affect your operations.

Cash Flow Problems

Perhaps the most common financial issue facing a business is running out of money, or more precisely, running out of cash. You may be looking forward to a very profitable year with plenty of new customers and repeat business in the mix, but if those clients have not yet paid you for their orders, you may find yourself without ready cash to pay your bills as they come due. Maintaining a workable cash flow for your business is an essential aspect of financial management - especially as payroll tax due dates arrive.

Cyclical Patterns in Business

No matter how robust your business, there are bound to be times when it slows down, and your financial inputs slow as well. The slowdowns are often easy to anticipate and are related to the calendar. A storefront on the beach will have a busy summer and a much slower winter, for example, while a toy shop can anticipate a winter rush for the holidays.

You'll also face regular periodic expenses. For example, you may have a quarterly tax bill that comes due every few months or a semi-annual insurance payment.

Expect the Unexpected 

Not all financial issues are easy to predict. Unanticipated natural events like storms, floods or fires, along with human-caused disruptions like demonstrations or boycotts, can also throw a wrench into your financial management. Among the things that can unexpectedly impact your business' finances are:

  • Lawsuits: A disgruntled customer, supplier or someone else who (reasonably or not) feels wronged by your company may file a lawsuit that can mean unexpected and often protracted costs in terms of both money and time.
  • Complaints: Like a lawsuit, a complaint to a regulatory agency or even a negative review on a site like Yelp or TravelAdvisor can suddenly leave you scrambling to repair the damage to your business reputation, a prospect that can result in a sizable unanticipated financial burden. 
  • Damage: Floods, fires, riots, electrical shorts, broken machinery and all sorts of other problems can arise that have the potential to lead to significant expenses or wipe out a business entirely. 
  • Crime: Break-ins happen, as do robberies - when carrying business receipts to the bank, for example. In the past few years, cybercrimes have increasingly plagued businesses, both large and small. If you are a victim of ransomware - a virus that shuts down your computer files until you pay a sizable ransom - your entire business can grind to a halt while you deal with the situation. 
  • Success: It's possible to have too much of a good thing. If your business is suddenly booming, you may find yourself faced with significant unplanned expenses for new staff, new equipment, expanded facilities and so on. It's not a bad problem to have, of course, but it can still put a strain on your finances. 

Try to Plan Ahead

All businesses face financial problems sooner or later. It's best to do what you can to mitigate them with some advanced planning. In particular, these strategies can help create a financial buffer zone:

  • Line of Credit: Work with your bank or other financial sources to establish access to credit long before you may need it. That way, if the need for an infusion of cash should suddenly arise, you will have ready availability to a source of credit.
  • Insurance: As noted above, bad things can happen. The predictable cost of broad-based business insurance may be preferable to risking the unpredictable costs of something going wrong with your business.
  • Manage Your Cash Flow: Have a process in place for dealing with overdue payments. If you're owed money, it may be necessary to take steps to collect it b