It’s no stretch of the imagination to compare your business to a child. When your children win awards at school, you cheer for them. When they’re sick, you worry.
It’s the same with your business, when it’s sick, you worry. Financial trouble is a major signal that your business is ill. You would treat your children if they were sick. Why not your business? Most people don’t know how to fix a business that is failing financially. This sometimes results in closures that are entirely preventable. To prevent your business from closing by following these 6 tips for improving your company’s finances.
1. Don’t acquire unnecessary debt
The biggest and most successful businesses carry debt on their books. They borrow money to buy equipment, engage in research and development, and make investments, among other things. They also have extensive lines of credit available to them should they need it. They don’t always take advantage of this, because they assess whether acquiring more debt will add to their balance sheet.
This is an attitude you should adopt. Borrowing money has a cost attached to it, which you are repaying in interest. If you find yourself buying non-essentials with credit (new coffee machine in the employee lounge), or paying recurring expenses ( e.g. salaries, bills), your business has a serious problem that you need to address immediately. If you can, sell whatever it is you bought on credit and repay the loan as soon as possible.
You may also need to reassess if you need as many employees on your payroll and if all the services you are paying for are absolutely necessary.
2. Do what you can to reduce current debt
Following on from the above point, debt can suck away all the money available for improving your situation. If you realize you have employees duplicating roles, you may need to cut back on jobs. It’s unfortunate, but if it means the survival of your business, you may not have a choice. This releases you from borrowing funds (and acquiring more debt) to pay them. Try to make arrangements with your service providers that will give you more flexible terms to pay your bills. You can also reduce the number of services you need.
If you’ve taken stock or equipment on credit, pay these off as quickly as possible.
3. Do a thorough audit of your company’s finances
You’ve reduced your debt level and shut off one point where your business is leaking money. Now you can ascertain where the money that’s coming into your business is really going. You won’t really know until you do an audit of your accounts. You may be surprised. That employee you trust because they are so hardworking, come in early and leave late? They may be embezzling funds.
That product you think is a cash cow because it’s so popular? It may actually be draining funds away from more profitable ones. You won’t know any of this unless you do a breakdown of your finances. There are a lot of budgeting and forecasting tools that can help you with this. Once you can pinpoint what’s causing your financial problems, you now have the power to fix them. The key here is implementation. It’s not enough to know where the money is being wasted. You have to do something about it.
4. Find ways to increase revenues and profits
If from your audit, you realize your business isn’t making enough money to cover its fixed and variable costs, you’ll have to come up with ways to increase cash inflow.
Do customers pay you in a timely manner? If not, this can create cash flow issues. You may need to be less generous with payment terms. Maybe people aren’t buying from you because they don’t know enough about your products. Your products may also not be pitched to the right audience, which is why they are not selling. You may need to increase your marketing or amend your efforts to get the word out. This is one of the easier ways to raise revenue.
Have you priced your product or service too low? This will affect revenue. You may have to go back to the drawing board to come up with a price that the market will bear, that is reflective of the value represented and takes into account the cost of production.
Prices that are too high can cause lowered revenue as well.
As you can see, revenues and profits are complex and you may need to tinker with a number of factors affecting them until your financial woes are eased.
5. Capitalize on government grants and resources.
Business owners often have a hard time delegating responsibility or taking advice. What many of them don’t understand is that they don’t have to travel the road of ownership alone. They can also offer grants and other financial incentives for Governments often have several solutions to help businesses suffering financially. They have access to free advisory services that can pinpoint the business’s faults. They can provide marketing data to help the owner understand his customer better. They can provide information on how to access foreign markets with their exports. They can also provide grants for business development. If you lack the money to do any of the above-mentioned, consider approaching your government to see what’s available.
This may not be the only program. There may be tax breaks and rebates for your business as well.
6. Seek professional help
If all else fails, you may need to pay a professional business or financial advisor to give your business a good look over. Look for one who has experience dealing with your product or service area. After you select one, ensure you provide them with the support they need to diagnose what’s causing your financial problems. What they have to say may be hard to hear. Business owners are sensitive to suggestions that they haven’t been managing their affairs in the best manner. That said, don’t let pride prevent you from following their advice. The life of your business may depend on it.
If you’re experiencing financial trouble, your business doesn’t have to close. Use these tips to guide you back into the red.