CFO Services | Why Pay Bills on Time
Often, when small businesses start to operate, they feel that paying bills late is part of a sustainable business model says CFO services. But this is actually not true. And actually is an indication that the business is starting to struggle.
They often believe that by delaying a month on paying bills. They can create a cushion for themselves, so that they can have more money to run their business. However, what it does instead is makes it more difficult for them to run their business.
The reason why, is because once an entrepreneur is behind on their bills. They often are not able to know or understand what the margins of their business are. And when they do not know how much money they are making.
They do not know how much their profit is. They do not know what their margins are. Or how many customers they need to have in order to break even. And so it becomes very difficult to make financial decisions in the business.
When entrepreneurs are behind on their bills in their business. And the problem often happens. When entrepreneurs try to grow as quickly as they can. Before they truly are ready to.
Often, business owners think that they need more customers, more jobs and more sales. When the first few months of their business. Should be focused on understanding sales, margins and profit first.
So that business owners can get into the habit of looking at their financial information and understanding it. And get into the habit of paying bills on a regular basis.
So that they can truly understand the finances of their business, how much money they are making. And how many customers they need to grow their revenue. Before they grow their business any larger.
Because if they do not understand their margins and their profit as a small business. They are not going to understand those things as they grow their business even larger.
In fact, it is going to be far more beneficial for an entrepreneur to hire CFO services in their business. Instead of thinking that they are going to be able to manage the finances themselves. And then run into trouble, when they are unable to pay their bills on time.
In fact, by paying their bills on time. Helps entrepreneurs avoid the problem of having unsustainable overhead. Because they will understand what their bills are, compared to the profit that they are making in their business.
When entrepreneurs are behind in all of their bills. What will happen, is that they are not going to be making enough revenue to cover their overhead. But not realize it, because they are behind on those payments.
So that every month, they are falling farther and farther behind. And not realizing that they are making things worse for themselves. And way possibly, think that they are helping themselves by paying late.
So that they have a larger cushion of money. Instead of paying everything on time. And facing the reality of if their overhead is too large for their revenue or not.
Contrary difficult for entrepreneurs to understand the finances of the large business. Which is why CFO services recommends they get good at understanding their finances will they are small. So that when they grow, they will not make mistakes with their finances.
Even though half of all entrepreneurs fail in Canada says CFO services. Almost 1/3 of all business owners that are not successful. Fail because they ran out of money in their business.
In fact, running out of money is the second most common reason why Canadian entrepreneurs fail. And there are several things that business owners can do. In order to avoid this problem in their business.
One of the most important things that they can learn early on in their entrepreneurship. Is simply to pay their bills on time every single month. And avoid letting the bills pile up.
The reason why, is because when entrepreneurs are paying their bills on time every month. They will start to understand if their expenses are too much for their revenue.
And whether they need to work on minimizing their expenses. Or increasing their revenue. Or perhaps a little bit of both. So that they can pay their bills on time, and turn a profit.
And while many business owners think that delaying or avoiding paying their bills. Is simply just a part of business ownership. This actually is a very dangerous business practice and should be avoided.
The reason why should be avoided. Is because when an entrepreneurs bills start to pile up. They get into our worse position than brand-new entrepreneurs.
And since new entrepreneurs are often extremely short on money. To be in a position worse than that. Is going to be very difficult to try and overcome for any entrepreneur.
Therefore, business owners need to avoid adding into a worse position. By not paying their bills. And it will not be long, before an entrepreneur who is not paying their bills, being forced to skip other payments.
Like skipping their taxes, or skipping paying payroll remittances. Because the penalties of missing these payments says CFO services. Can be so severe, that it can actually cause entrepreneurs to fail.
Because they are unable to pay off the penalties, and it will cause them to be so behind in payments. That there never going to be able to recover. And even if business owners think that they will be able to avoid paying them for a few months.
Canada revenue agency can literally freeze their bank account, or just take the money directly out of their bank account. Which is why it is never a good idea to stop paying any CRA bills.
Ultimately, CFO services says avoiding paying someone eventually costs more than it saves. It will affect relationships with suppliers, and cost entrepreneurs their reputation. Which could be very difficult to overcome. Even if they end up pulling themselves out of financial difficulties.