Today’s economy is more uncertain than ever. Demand is diminishing, costs are high, and interest rates continue to skyrocket. In these challenging circumstances, running a business has become arduous as entrepreneurs battle to maintain financial health. Some have consolidated their debts, whereas others are trying to diversify their product line. While these strategies might keep the business afloat in the short run, what about your long-term survival?
Every business can implement strategies to improve financial performance by taking action today. You can begin by allocating budgets to every department and ensuring they don’t go above and beyond. Likewise, assess costs and expenses to identify areas where you can pinch a few pennies. These budgetary changes will spare you sufficient cash, which you can re-invest in the business, boosting its performance and profitability.
If your business has also been struggling lately, look below. Here are six tips to improve your business’s financial position and performance.
1. Conduct Internal Audits to Analyze Financial Position
Are you accountable to anyone? Lack of accountability has been a persistent problem in the business landscape. Business owners incur expenses without being liable to anyone, which leads to financial constraints. The only way to overcome this is by creating an independent audit committee. It will comprise a group of internal auditors who will scrutinize your financial statements quarterly, semi-annually, or annually. They will identify loopholes, false transactions, and inaccurate records.
This way, business owners can beware of fraudulent practices in the organization. In addition, they will also recognize areas consuming the highest percentage of the budget, enabling them to reallocate resources. Besides this, most auditors also integrate an adverse media screening solution where they can get alerts for fraudulent transactions. It reviews consumer details and gives alerts so accountants can identify risks more accurately.
Hence, any potential customer trying to mislead you with false details and transactional status can get identified easily. It secures business against potential losses, leading to massive savings.
2. Recover Outstanding Payments
Most businesses today suffer from the issue of bad debts. They deal in credit sales, but customers default on payments, leading to massive losses and outstanding debts. These unpaid invoices also lead to substantial cash flow problems because the business lacks enough cash to incur expenses or pay suppliers. Therefore, adopt a few strategies to recover outstanding payments and stabilize the company’s financial position.
Ideally, you can seek help from a debt collection agency, but contact customers directly if you don’t have the budget. You can remind them of their obligations and penalize them for not paying timely. Furthermore, include a clause in your sales agreements explaining when payment is due and the repercussions for overdue payments. Besides penalties, you can also sue the debtor legally for not fulfilling their obligations but remember; this is the last resort.
3. Work on Cost Efficiency
Often businesses struggle financially due to their high cost-to-income ratio, leaving them with low profits. So, why not re-evaluate those business expenses? Believe it or not, cost-cutting is the quickest way to improve a company’s financial position. Here are a few tips.
- Negotiate terms with your suppliers. You can sign a long-term contract since it will put you in a position to conclude a lower per-month price. In addition, you can inquire about early payment discounts to save a few bucks in the long run.
- If you have hired staff for monotonous work, it indicates operational inefficiency. Hence, consider upgrading your technology to automate tasks and utilize your employees for meaningful work.
- Invest in inventory management software to save up on excessive warehouse costs. The software can forecast demand and adjust inventory levels accordingly. That way, you wouldn’t have excessive inventory, saving you from potential losses and additional rental charges.
These few measures can positively impact financials, increasing a business’s profitability.
4. Analyze Asset Utilization
Every business has a few fixed assets which they utilize to earn money. After all, there is an expectation that a piece of equipment will contribute to the company’s bottom line. But what if that doesn’t happen? In that case, you must look into asset utilization. It measures how efficiently your assets are used and how much value they bring to the business.
Let’s say you have a production plan that operates three 8-hour shifts in a day to manufacture raw materials. Now, assess the outputs produced and determine if the plant is underutilized. If so, consult with the supervisor and find out the downtime. Remember, a higher asset utilization rate translates into higher efficiency and profit margins.
Furthermore, you can conduct a cost-benefit analysis to determine if the asset cost exceeds the benefits generated. It will enable you to calculate the return on investment and evaluate its performance over time.
5. Explore Flexible Financing Options
At some point in time, every business seeks out loans to finance their working capital, purchase assets, or open a credit line. However, conventional loans have rigid rules and regulations, which leave businesses at risk of violating debts. It leads to hefty fines and a massive hit to your credit score. Now, it is time companies switch to lenders that provide tailored financing options with some flexibility. It could be scalable credit limits, covenant-light funding, or a higher credit utilization rate.
Higher credit limits will provide your company access to additional sources of credit. As the business grows, it’ll generate more value in debtors and inventory. Similarly, flexible financing options have limited reporting requirements, ensuring companies don’t exhaust resources.
6. Foster Revenue Growth
Boosting revenue growth might sound like a no-brainer, but do you know how to make it possible? Firstly, implement retention campaigns to increase sales to existing customers. You can consider cross-selling to your clientele or reach out to them personally.
Next, build a sales funnel to consistently flow new customers throughout the year. It will add to your top-line revenue even if you can convert a small percentage of leads into paying customers. That way, you can instantly boost profitability and improve your company’s financial performance.
Many businesses today suffer from financial constraints. Some because of the economic challenges and others due to their inadequate business practices. All business owners can turn around their business performance by implementing cost-cutting measures. It will help improve cash flows, reduce debt, and foster revenue growth. In addition, you can also work towards improving accountability and utilizing fixed assets in the best possible way. It will position your business to grow and thrive financially.
Jeena Alfredo is a passionate digital marketer at The Business Goals. She is working with other companies to help them manage the relationship with The Business Goals for the publications.