How to manage & improve the financial health of your business.
Learn the secrets from our finance experts
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Launching your own business can be one of the most exciting things you can ever do. But are you qualified to handle all the aspects of your business, especially crucial financial matters, for the smooth flow and management of your business?
According to Daymond John, prominent investor on the TV series Shark Tank and CEO of FUBU, “While good business ideas are plentiful, many entrepreneurs struggle to understand payroll taxes, health care, and other thorny issues. In other words, they don’t have the financial literacy to scale their business and attract investors.”
While this may not be true for a majority of the businesses, only 70% of small business owners describe their business as being in good to excellent financial health in the United States.
Given the importance of managing your business finances efficiently, in these post-Covid times, this is a matter of grave concern. Financial management plays a significant role in your business’s survival and growth.
To improve the financial health of your business and ensure it stays so, we share a few ways that you can manage your finances better.
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Regularly monitor your cash flow.
While keeping a book of accounts and checking the same is a good practice, don’t limit your involvement just to that. Keep a lookout also on the cash flow of your business.
Knowing the amount of money you have in the bank, projected incomes, expenses, current liabilities, and assets will help you plan your business growth more effectively and account for unforeseen emergencies or opportunities.
Good cash flow management will also help your business make efficient use of available resources, fulfill commitments to employees and stakeholders, gain a competitive edge and achieve long-term financial stability.
Work towards creating a positive cash flow after accounting for all regular purchases and expenses. A positive cash flow is good to negotiate better deals with suppliers, maintain prices when sales are slow and, takeover other competitive businesses that may not be financially stable.
Lenders also require cash flow statements to assist them in assessing your loan potential. So make sure that your organization prepares them regularly and accurately. It could help you get a lower interest rate from them.
Invest regularly in your business
The keyword here is “invest,” not spend. Being ready to invest in the future shows sharp business acumen and a passion for growth. It also demonstrates your confidence in the business.
Business partners, employees, and associates love to work with companies that show a confident attitude. They are more than willing to invest their time and money in your growth, leading to better financial stability for your business.
By reinvesting profits, you can also increase the value of your business and create a strong financial base for the company. In addition, employees will appreciate your investments in the company’s future and for their growth. That will also lead to lesser attritions, in the long term.
Investments can be in the form of equipment, expanding the team, launching a new product line, or even taking over a competitive business.
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Pay attention to tax deadlines.
Paying taxes regularly is mandatory, and any delay in the same is bound to incur penalties and interest. Apart from the additional expenses, you could also end up spending a considerable amount of time sorting out your tax matters with the authorities.
To avoid these pain points, it is better to hire a professional tax consultant and ensure that your business pays its taxes accurately and regularly while also availing all applicable tax concessions and rebates. Paying your taxes would also help your business improve its credit rating.
Keeping a proper book of records will ensure that you pay only the taxes due. To ensure a well-maintained book of accounts and timely payment of tax dues, you can also look at the option of hiring a virtual assistant to manage the tax returns on your behalf. Apart from tax matters, virtual assistants can also help your business save a substantial amount of money.
Look at business funding options.
Taking a loan or applying for funding is not necessarily bad for a business.
Every business reaches a stage when it needs to infuse further capital for its growth. With personal resources such as savings, loans from friends and family, etc., being exhausted, there comes a time when an entrepreneur needs to consider external funding sources.
The funding could be used for improving services, increasing business areas, or customer acquisition programs.
However, not all funding options are available for small businesses. Raising funds for business depends on the amount of funding you require and the planned usage of the funds. Getting funding also depends on how old the company is and the growth stage it presently is in.
Small business owners can consider the following two funding options for their business.
Debt Funding: It is a structured loan that the business needs to pay back, with interest payments on the funds used. Typically bank loans, cash advances from merchants, credit lines, etc., are considered debt funding options. In addition, some investors offer funding for your business through the debt funding route.
Debt funding is repayable, irrespective of how the business does or its cash flow.
Equity funds: Equity funding is sought by businesses that have a demonstrated and successful initial business model. It does not require any interest payments or return of the funds invested.
Organizations and investors opting for the equity funding route to finance your business often seek a stake, along with a say in the management.
While this type of funding is more common in the new age, technology-based businesses, investors are also open to partnering and investing with successful brick-n-mortar models. In addition, it offers a high return on capital to the investor if the business succeeds.
Small business owners need to consider both options carefully to see which suits them better. It is advisable to go for debt funding if the capital requirements are not too high and one does not wish to part with equity in the business. On the other hand, equity funding is more suitable for large-scale projects and if you do not want to take the risk of having to return the funds in case the business fails.
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Set up an efficient system to collect customer payments
Problems or delays in collecting payments from customers are one of the biggest reasons businesses have cash flow problems and shut down.
Don’t let this happen to your business.
Always ensure that the credit terms you offer to your customers are clear and easy to understand. Offer a discount for advance payments or payments within a week of the goods/services received by the customer.
Also, clearly state the penalties/interest charges applicable in case of delayed payments so that the customers are, forewarned about the same.
It is advisable to do credit checks on new customers to avoid any payment issues later. Also, ensure that all your invoices are accurate and as per the services/goods delivered to the customer. That will help avoid payment-related disputes at a later stage.
Presenting customers with multiple options to make payments, will make it easier for them to pay their bills on time. Have both offline and online payment options, so that customers can select the method most convenient to them.
Irrespective of the payment terms and payment facilities you offer, there may still be a few customers who fail to pay up on time regularly and delay payments for no valid reasons. In such scenarios, taking proactive measures such as reminders before the due date and conducting personal visits may be helpful.
Avoid working with such customers if the delays persist even after repeated warnings to reduce the chances of these payments turning into bad debts.
A well-planned and executed payments collections strategy will ensure that your business can manage its cash flow positively and avoid any finance-related issues affecting the growth of your business.
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The financial health of your business is in your hands.
It’s not enough to have a good business idea to launch a successful business. Having a good team and an efficient financial system is equally important.
With 38% of start-ups failing due to their organization running out of cash and inability to raise new capital, it’s time you paid more attention to your business’s financial health.
Monitoring your finances regularly, investing in the future, ensuring timely payment collections from customers, and paying your taxes regularly, are some of the steps you can take to improve the financial health of your business.
Apart from these steps, you can also attend the upcoming webinar by Wishup & NCheng titled Accounting 101: How to Evaluate Your Business Finance, on 21st October from 12 pm to 1 pm EST.
It is an invite-only webinar for start-ups and small & medium businesses.
This exciting webinar will focus on:
- How to effectively use technology to handle or manage the finances of your business
- How to read the financial health of your business like a pro
- Financial practices of successful businesses that you must know
- Benefits of Outsourcing & Operational Challenges
Along with many other exciting insights, you can also #asktheexpert to solve a particular problem and build a network with fellow entrepreneurs.
To register for the webinar, click here.
About the author: Suresh Dawmani is a Social Media Manager with Wishup. As a content creator, he writes on topics connected to marketing, entertainment, lifestyle, food, and travel. An avid photographer, he is also the author of the book “Mumbai Tales.”