It can be a difficult challenge, which is one of the main reasons around half of all small businesses fail within five years. Here are some of the key steps you can take to give yourself the best chance of staying afloat.
Manage Cash Flow
One of the first things you must do as a business is realize that balancing the books doesn’t necessarily mean the finances are looking great. Accounts Receivable is a particular point of interest, as this is the funds you are waiting for from clients. The average collection period formula will help you forecast your future financial picture. Use this to support cash flow.
Without cash flow, it will be difficult for the business to make its necessary purchases or continue to grow. So, if your available cash resources look low, it may be worth borrowing money. You can do this with business loans or invoice financing agreements, but must take the interest payments into account. If possible, paying your suppliers on credit is useful.
Reduce Financial Waste
As a business owner, you are often preoccupied with the goal of increasing revenue. In reality, cutting expenses without compromising on quality is often the quickest way to boost your financial health. It’ll support both cash flow and net profits. Better still, the benefits show very quickly and will repeat themselves month after month.
For starters, you should learn to get the best deals on all purchases. Whether it’s changing energy suppliers, finding better web packages, or negotiating discounts is up to you. However, it’s also important to cut out needless tasks. Losing the lengthy team meetings, for example, will translate to savings. As will daily tasks that add no value to your cause.
Generate More Income
It sounds obvious, but financial stability is easier to achieve when more funds enter the business. Crucially, when the company performs well, it can forecast its revenue and growth with greater accuracy. Winning new customers in a cost-effective way by knowing your niche is essential. But you must also look to maximise the customer lifetime value (CLV).
CLV is ultimately how much they spend over a lifetime. Given that the top 20% of clients will generate 80% of your revenue, strategies to boost loyalty are key. Memberships, discounts, and making them feel valued all work well. New revenue streams like content, affiliate schemes, and working with other brands are also worth pursuing.
Avoid Financial Damages
Finally, it is hard enough to maintain financial stability when things are going well. So, you simply cannot afford to let outside threats or unexpected issues put further strain on the venture. Protecting the company through security and cybersecurity measures is vital. Likewise, workplaces should be kept safe to avoid personal lawsuits.
Businesses should also stay ahead of legal red tape, and ensure compliance with all other key issues. Otherwise, hefty fines and other ramifications could spell disaster for the finances as well as the reputation. Meanwhile, a commitment to quality products and services should help reduce the amount of money lost to client refunds.
With the company’s financial health in better shape, the road to success should look far smoother.