Capita inadequacy is Often the bane of most small businesses.Under capitalization, or lack of sufficient operating capital, simply means the money has run out and in most cases, the situation can lead to the winding down of the business.End the dream. businesses, either small or big, need adequate capital to survive. but most lofty ideas have had their dreams cut short due to inadequate or outright lack of capital. The concept is simple, but the root causes of recapitalization are more complex.
Basically, There are several factors that can lead to under capitalization and knowing the factors that lead to it can actually help you prevent the M E N A N C E of undercapitalization and put your business on a sound footing.
Here are some of the tips on how to avoid undercapitalization of your business.
Basically, There are several factors that can lead to under capitalization and knowing the factors that lead to it can actually help you prevent the M E N A N C E of undercapitalization and put your business on a sound footing.
Here are some of the tips on how to avoid undercapitalization of your business.
1. CHOOSE AN INDUSTRY YOU KNOW
Do not rush
into a business in which you little or no experience. Lack of experience can
lead to underestimating how much capital it takes to keep the business a float,
which can spell disaster for your new venture. To be able to do well in any endeavor,
there is an absolute need for you to have a better understanding of the
business terrain as this will help you in identifying those basic things that
are needed to keep the company going.
2. HAVE A THOROUGH BUSINESS PLAN
Your
business plan will inform potential investors and lenders about your business
and (hopefully) entice them to invest. But it should also serve as a road map
for starting and running your business. If your business plan is thorough, you
will know if your business is viable and whether you can afford to fund it
during the start up stage and beyond. Set realistic goals, taking into account
worst-case scenarios and planning for these eventualities.
Sadly, most small businesses do not
have a well thought out business plan simply because of the way they came
about. In such a situation, when the company runs into some difficulty and
there is the need for capital injection from other investors aside from the
pioneer owners, the issue becomes complex as investors would have no business
plan to look at and since no one wants to put his money where there are no
proper investment plans, the recapitalization project hits the wall.
3. GET AN ACCOUNTABILITY PARTNER
Many
business owners go into business for themselves so that they can be their own
bosses. What many fail to realize is that even chief executive officers of
major public companies are accountable to a board of directors. Business owners
who have a mentor, accountability partner, or business coach consistently
outperform the competition. Getting another perspective is always valuable, and
it may spare you from making costly miscalculations.
4. DIFFERENTIATE YOUR BUSINESS
Consumers
today are overwhelmed with choices; how will your product or services stand
out. You may be able to remain meagerly profitable in a saturated market, but
unless you give consumers a compelling reason to choose you over someone else,
you will not thrive. You may have to close up shop if your revenue cannot meet
all of your financial obligations and retain a reasonable profit.
5.PROVIDE CUSTOMER SERVICE
Another way
you can differentiate from the competition is through customer service. When it
comes to customer retention, business owners should always look for ways to
improve their knowledge and skills, as well as those of their employees. Happy
customers are paying customers, which keeps the cash flow positively. There are
chances that if these factors are taken care of, you would have saved your business
from the pang of under capitalization.
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