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How to Avoid Financial Crisis in Small Business

How to avoid financial crisis in a small business


Are you the owner of a small business? As a small business owner, it is a crucial factor that you learn to avoid the financial crisis to keep your business alive. When you set up your small business and starts to run, if you see the increase in sales, there is a tendency to forget to get the analytical side of the finances to avoid the financial crisis in any small business.

The financial crisis in a small business, if not recognised and find a solution to resolve it, it can rock the boat or even sink it. So, what do think that will contribute to the financial crisis? There are few factors that we can look into to help you to avoid the crisis

Poor Record Keeping and Administration

Business owners are not good at record keeping, they have enough ideas to create a business, may be an excellent person to sell products but they will not have any knowledge about VAT, bookkeeping and payroll. You need to have these records to know how your business is performing.

  • How can you tell how you have spent your money?
  • How do you how much money that you are getting?
  • How do you look after your stock records? How will you know if anybody has stolen it?

These are all perfect records to maintain, just on a page for purchases, another one for sales and a record keeping book for your stock.

  • Do not keep excess cash in your business or at home as you will be tempting thieves to steal your money and also in the event of fire or flood you could lose your cash.
  • Check your bank balance daily as you will need to know the balance before purchasing anything. If you issue a cheque without knowing the balance in your bank accounts and if it bounces you can have an adverse effect, and your credit history will be affected, you will lose your suppliers as well.
  • If you are selling goods or services, you have to be careful with your billing cycle to avoid the financial crisis. Do not allow anyone to take more time to make the payment unless you make an agreement with them, as this affect the financial position of a small business seriously.

Implement controls over costing

collapsed business

To keep yourself in a strong financial position, look around for good deals and discounts in your purchases. Determine an upper limit that you will not pay beyond it, and the calculation of the total cost of a product should include all the expenses involved in producing the product.


If you need to avoid the financial crisis in your small business, you have to fix your price comparatively lower than that of your competitors. So, you need to cut down on your unnecessary expenses and pass that on to your customers to attain stability in the market.

Do not depend on few customers

It is one of the reasons that will lead to the financial crisis in a small business because when one or two of your customers leave, that will push your business to the ground. Further, if some customers delay in making the payments, your cash flow situation will be affected badly. Therefore, it will be wiser for the owner of the small business to go out and look for more customers to maintain financial stability.

Not having a Budget

Many small business owners face financial crisis as they do not have a budget, either they do not know how to create a budget, or they do not know to monitor their finances by the use of a budget. Having a budget is very crucial to achieve financial control in the business as you will need to know the total outgoings and incomings of your small business at least on a monthly basis.

Setting up contingency plan.

In an event of a financial crisis in your small business, you will need some help to save your business, otherwise your small business will be pushed to the ground. You need to have a separate business savings account and deposit a reasonable amount of cash into the account on a weekly or monthly basis, so that, you could  use it to overcome the crisis. If you suddenly fall ill, you cannot close the business down; you will need help to run your business. Therefore, you should have a complete plan written down about the operation of your business, and the money has to be saved to keep it going.

As a business owner, before even you start your business, you need to be aware of the above things to avoid the financial crisis of your small business.