Equipping your business with the means to weather differing trading conditions and circumstances through sound financial management is obviously important. Things move quickly and economic trends vary over time, so a business needs to be flexible and adaptable.
Basics such as using modern financial accounting software to track finances and ensure important paperwork is generated and issued, as well as hiring a reputable accountant, are steps in the right direction.
Here are some factors that can influence your business’s financial wellbeing and ability to avoid financial problems, and protect against adverse external financial conditions.
Many otherwise seemingly successful businesses have foundered through poor cashflow, with as many as over 40 per cent of small businesses experiencing cashflow difficulties.
Cashflow is literally the flow of money in and out of a business, and as such it’s subject to variations, ebbs and flows. The key is to spot these and deal with them.
For example, it could be something as straightforward as paying bills ‘too quickly’ while allowing customers extended periods of credit before their invoices become due. This can leave a business short of money even though sales might be buoyant.
So watch your cashflow records like a hawk and adjust if certain factors cause it to leave you actually, or even potentially, short of cash.
Credit control is important here if, say, several customers don’t pay their invoices on time – money that’s rightfully yours but not yet received shouldn’t be putting your business in jeopardy.
It’s worth periodically giving your purchasing routines an overhaul. For example, do you find yourself keeping too much of certain stock at any one time? Order less and don’t be seduced by ordering in larger quantities to qualify for discounts if it means money will be tied up in stock for too long.
By the same token, if your ordering quantities have grown as you’ve become more successful, perhaps your suppliers can offer a better deal now you’re a higher volume customer?
Check prices for regular items you buy – even small amounts shaved off each regular bill can mount up and keep more money in your account.
Beware of diversifying
While diversification can seem like a buzzword, with seemingly all types of businesses entering different markets, be aware of the time, effort and money it can take to break into a new marketplace. It’s all very well for companies like Apple to stride into a new arena, but they have huge marketing and financial muscle.
Maybe it’s better to focus on your core strengths and build on these.
Being adaptable and taking advantage of opportunities is important, but perhaps rather than diversify into a whole new area, consider a niche related to your present offering.
Entering a different marketplace will likely make large financial demands, and it’s especially risky if it means diverting funds from your current activities and potentially weakening them.
Spend your marketing dollars wisely:
Existing customers: it’s far cheaper to sell to existing customers than try and find new ones, so focus at least some of your marketing effort on your existing customer base. Simple things, like making them offers or looking after them properly and showing them how valued they are, will help boost your sales without necessarily costing much in marketing spend.
New customers: overhaul your current marketing methods – could it be done more cost effectively? Astute use of social media can be a very cost-effective way of reaching potential customers.
You may find that your more expensive advertising and direct mail campaigns could be replaced or at least scaled sown in favor of lower cost but still effective marketing methods.
Keeping on top of things
A lot of effective money management is keeping on top of how your business is doing, so regularly reviewing your cashflow and where you’re spending money can pay dividends.