Nowadays, one of the biggest issues small businesses oftentimes struggle with is finances. Ensuring financial health for your small business while trying to compete on an overcrowded market may seem next to impossible.
Aside from that, financial pitfalls are quite common in the business world and numerous small business owners oftentimes make a financial mistake even though they were trying to avoid them, in the first place. However, ensuring good financial performance for your small business doesn’t have to be that much difficult.
If you’re well organized and if you monitor your finances regularly, you can eventually identify the mistakes you’re making and fix your financial problems. Even if you do, in fact, make a mistake, you can mitigate and minimize the damage with the right approach in place. With that in mind, here are a few ways small businesses can improve their financial performance.
Reduce operational costs
Operational costs are the most important business expenses that eventually yield a return on investment (ROI). In other words, operational costs are investment expenses required for your business to become profitable.
Reducing these costs, without sacrificing product or service quality, can be quite challenging. However, if you manage to do so, you will vastly improve your company’s business performance. Operational costs include manufacturing, labor, marketing, and other similar expenses. That being said, here are a few ways you can reduce operational costs for your business.
- Outsource business operations.
- Hire freelancers or part-time workers whenever you can.
- Negotiate better deals with suppliers.
- Opt for efficient technology.
- Get rid of inefficient systems.
The more operational costs you manage to reduce the better your financial performance will be. Just don’t overdo it to the point where your products and services start to lack their original quality. The main reason is that your customers will undoubtedly notice and you’ll face a consumer outrage.
Keep your cash flow positive
Positive cash flow is one of the most important factors in your company’s financial performance. The main reason is that cash is your most liquid and thus your most important business asset. Without cash, your company can easily go bankrupt even though your company is generating profits and good revenue. Here’s an example.
Imagine you get paid via invoices and your invoices are due in 120 days. That means your company has generated both revenue and profits but you won’t have the cash for the next 120 days. During that time period, you still have expenses to cover, such as bills, utility taxes, employee salaries and so on. If you don’t have the cash to cover those expenses, you’ll have to look for external funding.
For instance, affordable payday loans could cover employee salaries and a bank loan could cover the rest. On the other hand, if you don’t secure external funds, the only thing left to do is declare bankruptcy. That’s why it’s very important to always have a positive cash flow, otherwise, your financial performance may not be so good.
Cut down your overhead spending
Overhead costs are similar to operational costs. They are also important for your small business operations yet they don’t yield any ROI. In other words, they are a necessary money drain that can be reduced in order to improve your company’s financial performance.
Overhead costs include bills, legal fees, taxes, utilities, maintenance, rent, travel expenses and so on. They are the expenses that are more or less necessary for smooth operation of your small business but that doesn’t mean you have to overspend on these costs. Fortunately, cutting down overhead expenses is much easier than reducing operational costs.
For instance, get rid of a land line if you’re not using it regularly. Also, you can move to a smaller office with cheaper rent or get rid of an office altogether if your employees can work from home. Another thing you should consider is going paperless. In a digital world, spending money on paper documents and paper waste is simply a waste of resources.
Improve your accounting
Most financial mistakes originate from the willingness of small business owners to manage their company’s accounting themselves, without having the proper knowledge or skills to do so.
Yes, you may save a few bucks by avoiding hiring or outsourcing an accountant or a bookkeeper, but the financial mistakes you might make in the process can cost you a lot more than what you would have spent on accounting services. There are firms with proper payment solutions for accountants that you can opt for, and that provide convenience to both parties.
Having an accountant to manage your finances is crucial for your company’s financial performance, so don’t think that by avoiding paying one’s services you’ll be able to save money in the long run. Furthermore, an accountant doesn’t just manage your books or your taxes. As a matter of fact, an accountant is also a financial advisor who can give you valuable advice on how to improve the financial performance of your company.
Managing the financial performance of a small business can be quite challenging. Your company’s profitability pretty much determines its overall success. With that in mind, having the right strategy in place and planning ahead can greatly help you out, not just managing your business finances, but also improving the financial performance of your company.