Overtrading - The New Business Nightmare

When most of us start out in business we hope to do well of course; we expect that all of our hard work will be rewarded with success. We dream of manifold orders for multiple units, and nothing could be further from our minds than the idea that our rapid success could prove fatal to our budding business, and yet 'overtrading' can and does cause just such major problems for many new businesses.

The difficulties that are caused by a new business' overtrading are a little like a man running down a very steep hill, as he begins, he can see his destination at the bottom quite clearly and so picks up speed until as he gains momentum gravity takes over and he finds himself rolling head over heels without control, not even sure where he will end up. His only certainty that he will not escape undamaged.

When a business starts to pick-up too much speed on its journey something similar happens, as it trips over itself to keep up, often, control is the first casualty. Consider those manifold orders for multiple units for a moment, if your business does not have the infrastructure to service them, which will often be the case at the start of trading, you may find yourself borrowing to buy materials and/or machinery and while money is rapidly going out at that end to service the growth in orders, nothing is yet coming in at the other to pay for your unexpectedly rapid expansion; in this scenario cash flow horrors are imminent.

Supposing you are fortunate enough to find a lender who can help with your immediate cash flow difficulties, the likelihood is that this type of finance will be very costly and at some point having to 'pay the piper' will bring a second round of cash flow issues.

It is not only extra materials and equipment that will be needed if the business takes off out of your control; one of the most costly expenses for any business is that of labour; employees cost a fortune and there is only so much that can be done without expanding their numbers; with more bodies will come a need for a larger space, which will pile more costs on top of the already growing list and we are back to the man on the hill once more.

Keeping overtrading in check is actually a very simple affair; all that is needed is the foresight to keep control of everything; a good solid business plan that is updated regularly will allow any business owner a crystal ball to see potential problems way in advance and when your business' nice steady trot suddenly turns into a canter you can be ready to pull hard on the reins.

Budgets and cash flow projections are also tools that will help you keep things moving at the perfect pace for your business, but just in case things do pick-up faster than anticipated, have a plan at the ready to cope; talking to your bank and securing finance in advance for when it is needed will allow you some slack that should see you through any cash flow bumps.

However, the simplest thing any business owner can do to ward of the demon of overtrading is to keep their greed in check, ambition is healthy, but it pays to be a little bit patient so that your business can grow from strong, solid foundations in to a lasting concern.

Visit Accountants Bournemouth, a firm of accountants and business advisors specialising in small business. Find out how we can help your business grow. http://accountantsbournemouth.org.uk/category/accounting-advice/