5 Tips For Maintaining Your Business’ Financial Health

Maintaining a healthy cash flow in business is a big challenge for any business owner. This is due in part to the countless factors that can influence a business’ financial status, from the global economic climate to unexpected costs.

With the COVID-19 situation, many businesses have been hard hit, with many already falling victims to the economic downturn. If you own a business, here are some tips for you on how to maintain financially fit. It might not be a foolproof way to tide you through this crisis, but it will be a helpful guide, especially for young or new business owners, entrepreneurs, and startups.

1. Update your budget periodically

Needless to say, budgeting is important. It helps you set aside sufficient funds for vital spending. Through budgeting, you are also forced to prioritise your expenditure and set goals for your business. Overspending may land companies in debt, but underspending can also be an impediment to a business’ growth.

Keep in mind that we say ‘periodically’ – your budget should reflect changes to your company and the current climate it is in. In other words, you can’t use the same budget plan every year. Instead, regular reviews and adjustments should be made at appropriate intervals, and whenever there is a significant change that affects the business.

2. Be realistic about cash flow forecasts

Creating a budget won’t be helpful if you are not realistic about the numbers. It won’t be possible to make accurate predictions every time, but knowing how to be sensible with your forecast can help you make better financial decisions for your business.

If you have past transactions to fall back on, use these to project forecasted cash flow. To account for variability and unexpected incidents, it is always useful to forecast multiple scenarios. For example, project a base scenario considering your past reports, and then forecast one scenario for 10% lower sales, and one scenario for 10% higher sales.

3. Have a credit control strategy in place

One thing that can have a significant impact on cash flow is late payments. Although you can’t exactly control when others pay your company what they owe, you can promote a culture of on-time payments by penalising late payments, and having a reminder system.

You can also further protect your company by conducting credit checks at the start, and outsourcing debt collection to debt collection agencies. Sticking to a transparent and consistent system will let others know you mean business – and they are more likely to pay up on time.

4. Plan for contingencies

As you may have noticed by now, a common thread in all these pointers alludes to the volatile nature of doing business. Anything could happen, from industry downfalls to a vital business partner going bust. The key to whether a business survives is in its adaptability.

It’s not a question of if, but when – so it pays to be prepared with various contingency plans. Having a business reserves fund is immensely helpful, as is having alternative sources of credit, like business loans. On top of this, being covered by suitable insurances also helps to alleviate any damages in the event of any disaster.

5. Record and review expenditure

For new businesses, planning ahead for your finances may prove to be a challenge due to the lack of past data to extrapolate from. That is why maintaining accurate records and reviewing your company’s cash flow is a good habit to set early on.

It might be tempting to overlook small expenses, but accumulating a lack of records can drastically skew your perception of your business’ actual cash flow. It pays to invest in proper bookkeeping and auditing to help your business have an accurate view of your spending and profits so that it can inform budgetary decisions later on.

Conclusion

Any successful business needs to have a sound financial plan in mind. With these tips in mind, you won’t have to leave it to chance. If you need additional capital to power your business through an expansion, you can also consider making business loans a part of your financial plans.

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