Financial health evaluation

Consume financial and business knowledge

A major precondition to be successful in business is to feel free in different business’s related financial options. The knowledge helps to understand different financials of your company, allows you to predict the potential financial future and use different financial services for more efficient business management. Different studies show that companies owned by business owners having better financial knowledge are more successful.

Plan your company’s finances

The same as in your private life, planning is really important for your business successes. Manage your business, not letting your business to manage you. Practice short-term financial planning that deals primarily with balancing short-term income and expenses, including cash, accounts payable and receivable, and inventory.

Know your expenses and keep track of them, preventing delays, and choosing automatic payments whenever possible.

Long-term finance focuses on building your strategy over time. This should not overlook your plans of expansion, how it’s going to be funded, how you will support your growth including internal affairs and employee benefits.

Create Cash Reserves

Business life is full of surprises and not all of them are pleasant. Be sure that your company’s finances can handle unexpected costs or sudden cashflow decrease. A simple savings account may work for this purpose. However, when building up your business savings, you should also draw out an estimated budget for how much to set aside. A good rule of thumb is to set aside at least 10% of your monthly profits, with up to 6 months’ worth of your operating expenses total in this account, before you start to invest in other instruments that can help increase your cash flow. So, even in the event of the unforeseen, the business will be able to maintain salaries, taxes and other expenses while it develops recovery strategies.

Profitable investments

Try to avoid unnecessary and ‘nice to have’ purchases. Invest only in solutions that will bring your company additional profit. This applies to developing new products and services as well as the formulation of marketing campaigns and financial portfolio investments. Estimation of cost center is inevitable. Know how profitable is every branch or product/service category. You might want to cut the ones that are less profitable and invest in the ones that bring you more in return.

Keep track on your company’s financials and use financial services

Planning finances and keeping track on them is like a hand and glove. Be sure you define the right performance indicators to monitor your company’s financial health. Talk to your bookkeeper. They are able to see the patterns and might help you to build metrics that are easy to read for you. Also, be aware of different financial services that could help your business to perform more efficiently not letting your competitors run you over.

Seek external financing earlier if you plan to expand at a fast pace

Investing all of your assets might rip you off your emergency funds and make it harder to be considered a good candidate for financing once owned resources come short to support the growth.