Wiser Financial Management for Your Business
For an SME, even a small financial misstep can pose major problems. To prevent setbacks down the line, consider these two methods of smartly managing your business's finances.
Owning and running a small business is no joke. You need to put in a lot of hard work, not to mention a huge amount of time toiling day in and day out in order for your venture to prosper.
Earning money is just one facet of this – you also have to be able to manage it properly. Quite often, a business can be working well, but because the funds are mismanaged, it may seem like you are losing money.
There are many ways to be wise about this. The main tenet is to keep cash on hand at a good level for your operations to continue working smoothly, and to keep your liabilities at the lowest possible level they could be. There are many ways you can practice this as you work in your business. Two key strategies prove especially relevant.
1. Keep Your Fixed Costs to a Minimum
The best way to decrease liabilities is to be prudent with your spending. Keeping your fixed costs as low as possible can help with this. One example of a fixed cost is your rent. Some aspects to consider for this line item are:
– The location of your office. If the size of the office doesn’t have to be too big, but accessibility is important for the daily transactions of the business, then it would be wise to choose a smaller space that’s centrally located.
– The size you need to operate. On the other hand, if the location isn’t really an issue, but the size is of greater importance, then you would usually choose the biggest land area you could afford that is farther from the central business districts. Examples of where this is more applicable are businesses that need warehouses or big facilities to house equipment, machines, or vehicles.
Another fixed cost would be the equipment that you have to buy. If you’re into manufacturing, assess whether it’s more prudent to have your goods manufactured by a third party, or if you are saving more in the long run by buying your own machines. Keep in mind that these assets involve a big amount of cash outlay and that you will have to pay for maintenance as time goes by.
2. Keep the Cash Flow Steady
A business accrues a lot of operational costs – one example is that you need a steady amount of cash to pay your suppliers in order for you to keep your offerings available. However, your cash may be locked in assets that you purchased, or in your payroll budget, or in receivables from your clients.
One thing you can do in order to keep cash flow steady, instead of taking on a bank loan which accrues interest and consequently increases expenses for you, is to sell the receivables that you already have to financing companies. For example, if you are in the trucking business, you can enroll in freight factoring, where you let a factoring company buy your account’s receivables so you get cash for them immediately. No need to wait for the 30- to 90-day period you initially have on contract with your clients before you get the cash you need to continue operating.
These are two of the main strategies to keep in mind in order to manage your finances more wisely. As long as you have these principles in mind as you make your decisions, you should find yourself secure, and your business in a pretty healthy financial state.