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Five tips to ensure your business is financially fit

  • December 15, 2021

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Starting a business venture and successfully running it is almost everyone's dream. Indeed it is exciting and seems effortless. However, it is a road full of bumps and hurdles. Unlike 9 to 5 jobs where we all wrap up our tasks before leaving, there are several minute details which a business owner has to look into. Hence, there are numerous risks to cater to and fulfill customers' demands when running a business. So, in addition to these primary concerns, when the business flourishes, there is a whole new range of challenges. As new issues develop, business owners must revise their strategies. Unfortunately, the methods that were effective a few years ago might not be helpful today. 

Amongst all the challenges severely impacting a business is a financial crisis. Therefore, it is indispensable to manage the finances of your business. When you are financially strong, you can utilize the available resources to achieve your desired goals. You can be competitive in the market, fulfill the stakeholder's commitments and be financially strong for the long term. Hence, adding financial management to your crisis management plan and other ongoing plans is a wise move. However, you may encounter unexpected financial losses when you run a business. Hence, it would help if you prepared yourself for sudden blows. Nevertheless, here we have some expert tips and tricks you may follow to ensure that your business is financially fit.

Automatic payment system for yourself and customers:

Business experts always discourage late payments, as it may impact the growth of your business. So if you have any customers who delay payments resulting in an outstanding invoice, an automatic payment system will be beneficial. It encourages them to pay on time and won't excuse themselves. However, if your customers still refuse to pay on time, hiring a debt collecting agency to manage these outstanding payments would be best. 

You can also set up an automated payment system for yourself. It saves you from missing the due date and penalties on late payments. One drawback of this strategy is the potential of overdrawing the money. Therefore, always check your account and keep it up to date. In addition to that, ensure that your personal bank account and corporate bank accounts are separate. It saves you from liability or any legal action concerning the corporate account. 

Set up an emergency fund:

The biggest fear when running a business is not making ends meet. Therefore it is essential to have funds to fall back on in such a scenario. These funds also help tide up your business initially, before your business starts to generate enough finances. Even in the worst-case scenario, where your business fails, these emergency funds will prevent you from falling. Hence, it would be best to set aside enough money to cover your expenses for at least three months. However, putting aside a year's expenses for any emergency is more appropriate. This way, you won't have to worry about the shutters rolling down. 

Pay off any existing debt:

It is pervasive for business owners to take out loans to start a venture. Hence, if you have any existing debt, it is advisable to pay them off before you plan to take another. After all, it gets challenging to cover up the startup cost with an existing loan weighing you down more.  So once your business starts to generate profit, it would be best to pay off any startup loans. You can start with paying off the smallest debt first, the "debt snowball" method. After paying off, the excitement and relief you get will motivate you to tackle the next one. Hence, it is advisable to stay debt-free and hold your business to a specific budget. Also, minimize your expenses as much as possible, but ensure that you don't compromise the quality. Similarly, before you hire a new employee, reevaluate the existing employees and check if they can handle the work or not. 

Consult a professional financial planner:

Whether your business is small or whatever your financial goals may be, it is always beneficial to consult a professional. A professional financial manager can guide you in investing, budgeting the resources, and saving up the maximum amount monthly. Similarly, they can structure your finances in a way that reduces the tax burden and protect you from any liability. Many business owners don't take assistance from a financial planner, as they have a tight schedule. However, it takes a little time to meet with a professional and create a financial plan for your business. Hence, a sound financial plan can help maintain your business's stability and enable you to prevent further financial losses. Therefore, there is no harm in squeezing out a couple of hours for your company’s betterment.  

Run your business below the means:

If you make up a habit of living below means, it helps you immensely as you don't get the chance to overspend. The same rule applies to your business. When your business expands, you may want to spend more on the resources for maintenance. However, it is advisable to do it in proportion to the growth of your business. In simple terms, be frugal. Business experts highly recommend this practice even if your business is booming. However, if you run a small business, there are higher chances of a dry spell or a sudden change in income. Similarly, it is also difficult to scale back once you get into the habit of spending more. But nothing is impossible; it all requires strong determination and consistency. 

A take-home message:

Owning a business has several desirable aspects. You get the chance to enjoy the independence of being your boss and the ultimate satisfaction of pursuing your dream. However, your goal of running a business can be short-lived if you don't manage the finances on time. In addition to managing finances, don't forget to take care of yourself. According to research, being a business owner is one of the most demanding jobs. Hence, it is necessary to take care of your mental and physical well-being. When you are in good health, you can make crucial decisions quickly and with full attention.