How small businesses can better manage finances
Studies show that there are three main problems that many small businesses face. These problems can wreak serious damage on your small business finances. If you choose to ignore these business problems, they can seriously interfere, with your cash flow, and put your business on life support. Because of this it becomes crucial to understand these problems and know how to manage them. However, the first step is having knowledge of what can go wrong, and a plan to deal with it, when it does. Here are some things that small businesses can do to better manage their finances-
- Have better debt management-The first step to managing your debt is to determine exactly how much you have. Then you must understand why you're carrying too much debt. Are you relying too much on a line of credit or credit cards to meet business expenses? It is important to understand that some types of debt are far more expensive than others. You may want to consider taking out a business loan. This is often a more inexpensive debt management solution, if you can't currently meet expenses, from revenues. Keep in mind that if existing business loans are the root of your debt management problem, you may be able to get a consolidation loan, or renegotiate your current loan terms. You should consider all options, since many times, failing to manage your small business finances, is what ultimately closes the door of your business. You may have assets that can be sold, so you can pay off some or all of your debt. However, before you do make any big moves, you should talk to your accountant and/or a credit counselor, and seek advice about what the best debt management solution, would be in your case.
- Have a better process, for collecting accounts receivable-Collecting accounts receivable is crucial to your business's health. If collecting your accounts receivable is not being managed correctly, there are generally two main courses of action to improve your cash flow. The first action is to speed up payments. You need to make sure that your business is invoicing promptly. If you are putting off invoicing, it gives the customer the impression, that you don't care how long it takes to get your money. The next step is to take measures to encourage prompt payment. These can be things such as clearly stating payment due dates and sending overdue notices. You may need to use collection services when necessary. In conjunction, with collecting current account receivables you should also carefully review your credit policies, and the credit histories of customers and/or clients. The goal here is to weed out unprofitable customers. These are those customers that cost more to maintain, than they add to the bottom line. You should also flag those customers who have a history of slow payment. Finally, getting a credit check on a customer before you extend credit is always good idea.
- Have better inventory control-Small business owners need to understand that inventory can really slow up your cash flow, because it ties up your business's cash. The reason for this is that once you have put your cash into inventory, you can't use it for anything else, at least until the inventory is sold.In the worst case scenario if it doesn't all get sold, you may end up having to deep discount it or write it off, which means that you are losing money either way. Finding the right inventory control balance, is reached between how much stock your company needs,to meet customer demand,and how long it would take suppliers to fill last-minute orders. It is tricky but it is possible.