Is your business spending out of control? If you have lost the grip on your income and outgoings, you need to get back on track asap before things spiral out of control. Poor finances or cash flow is often cited as one of the reasons for business failures, and as such, this issue, if not checked and corrected, can spell the beginning of the for many businesses. But where do you start, and how can you find the right places to cut back?
Income and Expenditure
Before you do anything else, sit down and go through your numbers. You need to know where every single penny is going and how vital it is to operations. Then you need to track your income and look at how this is utilised within the company.
Once you have your numbers, you can then put a plan in place to overhaul finances and get things running correctly.
Create A Good Cash Flow Forecast
Once you have identified all of your income and expenses, a good idea is to pop them in a cash flow forecast. A cash flow forecast is a model that allows you to see all of your impending credits or invoices due in a certain period and your expenses for the same time frame. This can be a week of whatever works best for your business. Get this up and running for at least the next three months. From here, you can work out your net cash balance and have an idea of when some weeks or months might be leaner, allowing you to budget correctly for these times. The more prepared you are for the time when you might struggle to cover your bills, the easier it will be to put plans in place to overcome this as much as possible and identify the true health of your business.
Identify Waste
There are likely to be multiple areas of waste within your operations. If you’re focusing on your spending, chances are things are slipping through the net. Use your figures to identify where these areas are and why spending has gotten out of control in these specific parts.
Once you have a dealer idea, you can put plans in place to reduce waste, be it looking at ways to reduce manufacturing costs, cut down on wasted employee hours or automating processes to reduce costs and improve efficiency in different departments; you need to take each point and look at ways to improve what you are doing to reduce costs without cutting corners on quality.
Communicate Effectively
Effective communication is vital both internally and externally. Your employees need to know where you stand, and heat is acceptable when it comes to spending company money, including staff overtime, buying supplies, authorising payments and so on. Everyone needs to be on the same page regarding all financial decisions to ensure you remain on track.
You also need to communicate with suppliers and clients regarding when you pay your invoices and when customers pay you for services rendered or products. Be clear and explicit on your payment perms and consider putting credit control methods in place to ensure you are getting the payments you expect when you expect them and they don’t turn into aged debts.
Pre-Empt Trade Difficulties
Is your industry likely to exercise price fluctuations? For example, florists can expect to pay higher costs around in-demand seasons such as Mother’s Day or Valentine’s Day. At the same time, stock shortages or fresh produce due to poor weather conditions can affect the cost of wholesale fruit and veg. By staying abreast of changes and fluctuations in your industry, you can plan ahead for items when business might be reduced, you have high demand, or even anticipate tax rises or increased fuel costs due to the current economic climate. Being able to budget in advance can ward off financial difficulties and allow you to adjust your forecasts to retain more control.
Conclusion
Neglecting your finances in business can result in dire consequences. With nearly 50% of businesses failing within the first five years, being able to avoid this fate can help you present your company in the best light and ensure longevity for as long as possible.
Your finances are the backbone of your company, and ensuring you have everything under control financially is vital for your long-term success. These tips can help you to avoid some of the more common pitfalls facing small businesses and put yourself in the best possible condition for success.