Knowing how your business is performing is a task that should be done regularly. If you are looking to making more informed decisions and ensuring all resources are properly allocated, you’ll need to first get a clear picture of your business’s financial health. Without doing that, you’re likely to put money and effort into projects without a defined return on investment.
Furthermore, understanding the financial position of your company is also helpful for your employees. They can recognize how well you’re doing, and in turn, you can give them the raise or promotion they ask for and deserve. Read on to learn what steps you should take to improve your company’s financial position.
1. Consolidate your debts
There’s no doubt that businesses possess more expenses than most individuals. And it really is easy to slip into worse financial difficulties when you’re not aware of every business debt you got. For instance, late or missed payments can readily result in higher interest rates and additional fees. Or worse, your company may face legal problems.
One popular solution for businesses is debt consolidation. This approach refers to taking out a new loan then paying off the other debts. In other words, you’re combining multiple debts into one payoff that has better payoff conditions, as well as lower monthly payments and interest rates.
2. Improve the cash flow
Considered the most liquid asset, cash is the most crucial asset for any business. It allows you to take on immediate investments and pay for expenses quickly. If you want your business to be financially stable, you obviously need a positive cash flow. A positive cash flow is determined if there’s more money coming into your company than going out.
Make it a habit to regularly check your business expenses from accounts payable and incomes from accounts receivable. It’s also recommended to perform inventory checks, use electronic payments, conduct a customer credit check, and send the invoices immediately. By improving your cash flow, you can have the cash you need to support your business.
3. Rearrange or reduce expenses
The next step is to check all your business expenses and determine what you could reduce or rearrange. These could include switching suppliers, banks, or insurance companies to get a better deal, changing the number of stocks you buy based on your situation, and arranging periodic or deferred payment plans for bigger expenses.
If you’re opting to reduce costs instead, check your overhead and figure out which ones you can adjust without affecting operations such as production and manufacturing. Such costs may include accounting fees, travel expenses, maintenance, taxes, and legal advice fees. Other ways to cut down business expenses are reducing printing, switching to remove work, buying used equipment, or negotiating terms with vendors.
4. Check legal obligations
The most common legal responsibilities that businesses have include permits, licenses, taxes, premises liability, and product safety. These are required for you to legally operate a business and prevent expensive legal issues. However, if you want to attract more employees, boost workplace motivation and productivity, and avoid surprise expenses, you might want to add another layer of protection into your operations.
For instance, if you’re operating a trucking business, you may be required to get a truckers’ injury insurance or workers’ compensation coverage. Talk to experienced trucking attorneys to better understand the terms. Other required employee benefits that can save you from costly legal issues include minimum wage and overtime pay and social security contributions.
5. Adopt a profit-first method
The profit-first method is typically used to establish a sustainable and profitable business and structure finances. Instead of using the traditional accounting method, which is Sales – Expenses = Profit, the profit-first approach reverses that into Sales – Profit = Expenses. This method actively promotes business growth and puts more cold hard cash into your account.
In addition to that, this unique framework offers more advantages. It can help you remove unnecessary expenses, improve sales margins, give clarity and control over expenses, and most importantly, you get to pay yourself properly. However, be sure to analyze your business financial situation first and check if this method is suitable for you.
These steps are critical for every business owner aiming to have better financial health, opening up more ventures. Take a look at your status right now, and if those paychecks aren’t going out on time or that you aren’t getting the projected ROI, your financial wellness is surely on the rocks. Take actions today and set yourself up for more profitable growth. This way, you can avoid bigger issues in the long run.