4 ways to improve the financial health of your small business so you can be sure to turn a profit

Businesses can fail for many reasons but in the end, it all comes down to one thing: money. If you don’t have a clean bill of financial health you’ll end up in deep water.

Profit and cash flow are the two essentials: you want your small business to be turning a profit, but you also need to have enough cash accessible to meet your regular running costs.

It might seem difficult to start turning things around if your small business is simply treading water, but it’s never too late to improve your financial health.

Here are four things you can start doing today that will have a proven positive impact on your small business.

1. Know your costs

In order to start improving your financial health you first need to get to grips with the figures.

If you don’t have a firm understanding of your expenses and overheads then your profit margin will quickly suffer and you’ll find yourself reporting a loss this year.

There are plenty of tools out there offering a financial health check if you’re unsure of where to start – Money Advice Service is one of the simplest to use and is completely free. Doing a financial health check is about getting a clearer picture of your small business landscape – and it’s an invaluable first step in improving your overall financial health.

As a small business, you need to have a thorough understanding of all of your financial information. You need to know exactly what’s coming in to your business and when, what’s going out and when, and what your financial forecasts are.

Again, there are loads of tools to help with this – Money Dashboard, the free personal finance software, is widely regarded as one of the best.

Once you understand exactly what your financial health looks like, you can begin to make the necessary changes to save money and improve cash flow.

Money GBP 1 (PD)

2. Make savings with suppliers

Once you’ve assessed your small business’ financial health you can start identifying areas to improve.

One of the major mistakes small businesses make is to think that slipping margins means sales need to increase. Sure, an increase in sales is great but you also need to be realistic. If turning a profit means you need a significantly higher increase in sales than your small business has ever seen before, it’s unlikely you’re going to hit your target.

On the other hand, if you can decrease your outgoings as well as increasing your incoming – the financial health-o-meter will swing back in your favour.

One of the main ways to cut expenses is to make savings with your suppliers. It might be tempting to stay with the same suppliers long-term but it’s a good idea to compare prices elsewhere in case you’re missing a great deal. Don’t forget to negotiate either! Many small businesses find it intimidating to ask for discount but it’s vital if you want to secure some hefty savings.  What’s the old adage? If you don’t ask, you don’t get.

3. Make sure your invoices = revenue

A surprising number of small businesses are losing money through bad invoicing practice.

You’ve done the difficult bit: you’ve won the contract and done the work, but if you’re not getting paid for it, your financial health will suffer.

Here are some invoicing best practices:

• Be explicitly clear about pricing from the outset– so you’re creating a rock solid paper trail if they shirk their responsibilities later

• Ask for a proportional deposit at the time of order

• Credit-check new customers

• Send invoices promptly and ask for Acknowledgement of Receipt

• Allocate responsibility for chasing up payment to a specific person – so it never gets forgotten

• Include your terms on the invoice – late payment penalties work wonders

• Use numbers to record invoices so both you and your client can easily track them

If you cut out any money you’re losing from untimely or, worse, refused payments then you’ll immediately improve your financial health – without making any significant changes.

4. Explore alternative finance options

At some point many small businesses need extra financing in order to invest in and grow their business. Whether that’s to improve your product, improve your premises or improve your marketing, there are a few financial options to consider.

A business loan is one of your first options, but the qualification process is stringent and often small business owners find they struggle to get bank buy-in. Indeed, first time lending from banks to small-medium businesses currently has a rejection rate of around 50%.

So what are the alternatives?

Crowd funding is an interesting possibility. Don’t write it off just yet – potato salad aside, crowd funding can offer a quick cash injection, and you control what you give away in exchange. Some small businesses have had unbelievable success – the Pebble E-Paper Watch raised over $10.2 million in 37 days – although such successes are admittedly few and far between.

If you’re less crowd funding confident, a business cash advance is a good option to consider. The business cash advance is still relatively unheard of in the small business world and yet they can offer an immediate financial boost without hidden strings attached.

A business cash advance is completely different to a bank loan. Rather than paying APR, fees, hidden charges or fixed monthly repayments, you agree a cost upfront and your payments are linked to your card transaction income. In other words, you don’t pay money until you’re earning it, and that can only be a good thing for your financial health.

A business cash advance is good for your mental health too – it’s not secured against your home or assets so the things you love stay safe. Some loans threaten to cost you everything, but a business cash advance is a low cost, low hassle, funding solution.

Author: Paul Mildenstein, CEO of Liberis, Business Friendly Finance

Paul Mildenstein - CEO LiberisPaul has a track-record in driving profit and market share, change management and brand development in both B2C and B2B organisations. Paul’s knowledge of how businesses operate means he knows first-hand the issues facing business owners.

Paul was announced as runner-up in Credit Today awards 2015 and winner of the prestigious DBA Design Effectiveness Awards.

Paul is a regular contributor to the media on small business funding, providing thought pieces and comment for publications including Real Business, The Daily Telegraph, The Times, Alternative Finance and Credit Today.

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