Financial health often directs the success or failure of an organization. Staying on top of your finances can mean the difference between growth and closing your doors.
If you aim to advance your business’s financial well-being, you are in the right place. Here are five steps to help your company reach optimal financial health.
1. Understand Your Financial Position
Start with an overview of your business’s financial landscape. How much income is coming in, and where are your major expenses? Understanding these numbers is very important.
Consider implementing tools or software that can help you track your income, expenses, and liabilities. Regular financial assessments will allow you to make informed decisions, ensuring you do not overextend or find yourself in a tight spot.
2. Set Clear Goals
Every successful journey begins with a destination in mind. In the context of your business, this means setting financial goals. Break them down into categories: short-term, mid-term, and long-term. Perhaps you aim to increase your profits by 10% in the next six months or plan to open a second location within two years. By setting these targets, you give your business direction and purpose.
Remember to use the SMART criteria when setting your goals. They should be Specific, Measurable, Achievable, Relevant, and Time-bound.
Another important element is creating a budget. A well-thought-out budget will serve as your roadmap, guiding you toward your financial targets.
3. Prioritize Debt Management
Debt is a reality for many businesses, so it is important to manage it wisely. Start by distinguishing between ‘good’ and ‘bad’ debt. Good debt might be a loan you took to expand your operations, expecting it to bring more income. Bad debt, on the other hand, might be high-interest loans or credit cards that do not contribute to growth. Your primary focus should be reducing the high-interest bad debt, which can quickly erode your profits.
Maintaining a favorable debt-to-equity ratio is also essential. Potential investors or partners might look at this measurement to determine the financial stability of your business. A lower ratio indicates your business is less dependent on external financing, which can make it more appealing to lenders, investors, or partners.
4. Plan for Emergencies
Even with the best plans, unexpected events will occur. Equipment can break down. Clients might delay payments. Economic downturns can impact demand. How will your business weather these storms? The answer lies in preparing for such financial emergencies.
One of the best strategies is to establish an emergency fund, money set aside to cover unforeseen expenses. Determine how much your business needs to save by assessing your monthly costs and risks. Ideally, you should have enough money in the fund to cover three to six months of operational costs.
Purchasing business insurance is another layer of protection. Assess the risks your business faces and ensure you have appropriate insurance to cover potential losses.
5. Seek Education or External Expertise
The business landscape is always evolving, and financial strategies that worked a year ago might not be as effective today. As an entrepreneur, it’s important to keep learning. Explore books that cover modern financial strategies, or consider joining workshops that discuss the latest best practices for business finances.
If the realm of finance isn’t your forte, there is no harm in seeking external expertise. Consulting with a financial advisor or business coach can provide invaluable insights tailored to your business’s needs. They can offer advice, suggest tools, and provide strategies to help enhance your financial health.
Caked: A Real-life Success Story
Take a peek into the journey of Ricky Gudino, the co-owner of a booming Las Vegas bakery called Caked. When Ricky opened Caked, he faced stiff competition in Vegas and struggled to keep his expenses lower than his earnings. Further complicating matters, a lack of internal checks and balances led to his team delivering wedding cakes for events that had been canceled weeks prior.
After signing up for FINSYNC, he was able to better understand his financial position and recognize areas where he was overspending. He was able to more effectively manage orders, delivery dates, and open invoices.
Ricky also utilized CollectEarly to get paid immediately on net 30 invoices to his catering clients. As a result, Ricky’s vision of growing his business and opening a second location is a reality.
The future of your business depends on solid financial health. So, it’s important to understand your financial position, set goals, manage debt, plan for emergencies, and seek education or external expertise. These 5 steps can help you stay on top of your finances and grow your business to the next level.
How FINSYNC Can Help
FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.