4 Simple Ways to Improve the Financial Health of your Business

30/04/2015

Managing Your Money

1. Know your costs and contracts

The failure to keep on top of your costs can spiral into a serious problem for businesses of all sizes. If you don’t have tight control over your expenses and overheads then you’ll likely be harming your profit margin. If you think you might have lost control of your costs then the best and first place to start is with a financial health check. There are plenty of companies that provide this service, including the Money Advice Service, which offers a free online financial health checker tool.

A financial health check will give you a clearer picture of where you stand with your finances helping you take control. Depending on the results it will give you some tips on how to improve your situation.

From here you should then begin to track your spending. Write down everything you spend over the course of a week/month, this should then give you an idea of where exactly money is being spent and, as a result, where money can be saved.

It may sound like a pointless exercise but you will be surprised at where your money is going each month: payments that seem trivial at first can add up pretty quickly and amount to a large sum each month; if you can reduce these it will save your business money. You can use software such as theMoney Dashboard in order to help you track where your money is going each month.

Health Check Finance

2. Shop around for better deals

Once you’ve assessed your business’ financial health, and where your money is going, it’s usually a good idea to see where you can make savings, particularly with suppliers.

Keep an eye on your contract renewal dates. Although staying with the same suppliers offers a sense of security, it may be a good idea to shop around and compare prices. You may be able to get yourself a better deal from a new company or even convince your existing supplier to lower their price, possibly saving you thousands.

You could join a buying group or use a broker; they will help you get a better deal. Also, don’t be afraid to negotiate. There is usually some wriggle room with an initial quote so make sure you get the best possible deal.

3. Improve receivables

Any business’ fundamental objective is to improve the speed you turn materials and supplies into products, inventory into receivables and receivables into revenue. There are a few ways you could do this, for example, ask for a deposit at the time an order is placed with you. This will put a little extra money into the pot covering materials, meaning you are not out of pocket for any one project.

Make credit checks a requirement for non-cash customers. If you are in a business that involves invoicing on a monthly basis, it may be a good idea to run credit checks on potential clients before contracting to do the work. There is no point losing man hours to someone who can’t pay their bills. While on the subject of invoices, make sure they go out promptly and are followed up if payments are slow coming in.

It is a good idea to make someone responsible for chasing down payments. This should improve your cash flow and ensure that there is enough money at the end of the month to pay staff and suppliers.

4. Explore alternative finance options

You may be considering a business loan to help improve or grow your business. Perhaps you’re thinking of a refurbishment to accommodate more customers or to improve the appeal of your business. Or you just need to plug a cash-flow gap for a short period.

But what if you’ve been turned down for a bank loan before, or you’re concerned that you don’t have the right financial credentials to get accepted? First time lending from banks to small to medium businesses currently has a rejection rate of around 50%, which could be problematic for your business’ expansion and growth. If this is the case, then it could be time to explore alternative finance options.

One option is crowd funding, however this usually works for entrepreneurs who have an idea that the public want to get behind, like the latest card game or innovative high tech headphones. If you aren’t the next Steve Jobs you may want to investigate a different option.

Alternative finance like a business cash advance is completely different to the traditional kinds of finance and is relatively still unheard of by many SMEs. Unlike a bank loan, a business cash advance does not have an APR, fees, hidden charges or fixed monthly repayments. You can secure funding quickly and easily based on your future debit and credit card sales and payback is in line with your cash flow, based on an agreed percentage of card transactions.

This can be a better way of generating a cash injection as you only pay back when the business earns, rather than having a debt that is coming straight out of an already light wallet.

These are just some ways you can start making the finances of your business healthier, making sure you can tick that resolution off your list.

If you are considering financial help for your business, please feel free to get in touch with us for an impartial, no obligation chat.

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