As enthusiastic entrepreneurs, experienced people have performed just about every activity on the spectrum. They have faced successes and struggles simultaneously in different situations. Experienced professionals are aware of ways to save successfully running companies from going underwater. They continue to learn improved methods to make a financially healthy company. Such knowledgeable people own the skill to save their well-established companies during any kind of circumstance such as the Covid-19 pandemic.
Experience teaches you that if you want to save yourself from facing serious problems down the road, you must get in front of the issues early on
So, how to keep your business financially healthy so that it can survive both unexpected and unplanned events? These tips from the experts can help. Read on to learn the ways to save your company from drowning.
Table of Contents
6 Tips to Keep Your Business Financially Healthy
People go into business to earn good money. Everyone is looking to grow their business and make money. Ahead are the top six tips to keep your business financially healthy:
1. Equity vs. Debt
Equity vs. debt is a perennial dilemma that business owners face when gathering capital for their companies. Debt can be repaid in no time and will allow you to get back the authority and control over your business. Simply put, it will be hard to raise debt for some time, but if it’s done, it protects your skate for a long time. This will let your reap bigger dividends with ease.
Whereas, a risk-averse startup entrepreneur will find the option of giving up equity to raise investment a catchy choice. But if you will offer a lot of equity to the buyer, it will dilute the company’s stake in the business.
2. Know Your Numbers
Entrepreneurs know that a company stays alive and finishes off because of its numbers. If you are not a “numbers person,” you can still understand it. It’s just simple business sense to realize that all numbers on any line of your books are impactful.
By number, the following things are considered:
- Cost of sold goods
- Revenue generated and so on.
You understand what is being discussed here. All the lines are crucial and it is important to make sure all online and offline transactions are accounted for in your books. That is the first thing to do to make sure you can put down the base for the health of your company.
3. Keep an Eye on Your Income
If entrepreneurs and businessmen don’t know the ways to manage the cash flow of their businesses, they will most likely fail.
On paper, your revenues may exceed your costs, but in reality, their timing may result in insolvency. This makes overwatching your costs and revenue every month an important activity for the financial health of your business.
Checking your cash position at every month’s end and comparing the performance every quarter to gauge your business’s overall financial health. In this way, you will make sure you are building positive growth for your business. Even a small percentage point of quarter-over-quarter or month-over-month growth is a fine sign. Float, an excel spreadsheet, and many other similar apps are available to make teaching your cash flow growth easy for you.
In the end, give a look at the timing of your business’s costs and revenue.
Do not expect an influx of costs without enough savings or revenues to take care of them. If you are looking for quick liquidity, get in touch with your suppliers and ask them for a prolonged payment term, or even use services like Fund through to factor your invoices.
4. Scale Responsibly
Financial failure and scaling too quickly are linked with one another. Of course, every businessman wants to scale his business. But you should keep your financial budget in mind when doing so. Plus, it is better to do it slowly and exponentially. Scaling businesses without taking care of a defined budget or carelessness can result in either damaging the business or going bankrupt. Overall, in general, it is hard to scale a business.
As far as budgeting is concerned, instead of scaling for your end target, you need to scale only for your next target. You will only burden your budget if you plan to scale at a lightning-fast speed. Remember, it is vital for you to not make a lot of financial obligations that you are unable to fulfill and only go for the responsibilities that are capable of fulfilling.
The same principle is applied to startups, they might also fail in case of rapid scaling. They should also scale slowly and gradually and meet the next target instead of ending one. Try not to make forecasts and predictions into account for investing too much in a startup. It is critical to find the ideal balance between running and scaling a startup for future business opportunities or else you might end up ruining the current company.
5. Follow Consistent and Timely Billing Practices
People can effortlessly get into the day’s minutiae and overlook a lot of things. But billing should not be one of those things. Not turning on the office lights in the daytime or forgetting about it is an acceptable thing. But it is unacceptable to forget to send out invoices to the customers. To keep the lights on in your business, try to maintain consistent and timely billing practices. You will be totally satisfied with the results obtained afterward.
You can make and develop a process to send invoices to your clients. Keep a pre-set plan by yourself when sending the invoices in order to perform perfect invoicing. You will only get your payments from your customers if you will send them invoices as fast as you can.
Automatic invoicing is also available on the plate. Meaning you can ditch the idea of manual invoicing and automate this process. Take help from accounting software made to make and deliver invoices in just a few clicks. For customers that work with you on a daily basis, you can set up recurring invoices to save time. There can be clients that require a polite reminder to clear your payments. For that, set up invoice reminders for a predefined period of time so nothing falls between the cracks.
6. Keep Funds For Emergencies
Entrepreneurs and businesspeople usually expect the unexpected. But predicting global problems is totally a different thing and certainly out of their domain. The Covid-19 pandemic wreaked havoc on the supply chain worldwide for the businesses that were running during those days. It also closed the doors of the businesses and sent the employees home or remotely. Supply chain problems are one of the many reasons behind the increased costs to run businesses. An emergency fund can help you to cover these increased expenses of the company.
When you urgently need funds, time is of the essence. And asking friends, family members, and commercial banks for a loan is not an option as they take a lot of time. We all know the importance of having some breathing room, especially after going through the Covid-19 pandemic.
There can be situations when you need urgent funding. The emergency or unexpected situations can be different such as repairing a portion of the building after a natural disaster or compensating for payroll when the profit is going low. Save funds worth at least a year’s expenses. If you can’t, try to save funds for running your business for three months.
There are many other benefits of emergency funds as well. You can use them to invest in your business or compensate for paying for new hirings. But remember, only use these funds when you desperately need them. Don’t forget that you are saving money to use them in your time of need.
FAQs – Frequently Asked Questions
What is a financially Healthy Business?
A financially healthy business is a business whose capital can create profits, meet all expenses, and make investments.
How can we keep our business healthy?
You can keep your business healthy with the help of various tips and techniques for your business. If you follow the tips and methods, you will be able to make your business more healthy.
How can a business be financially strong?
By doing the following things, a business can be financially strong:
- Offer more payment methods
- Take advice from experts
- Opt for modern marketing techniques
- Recover existing debt
- Consolidate debt
- Sell additional assets
- Rearrange or lower expenses
- Offer increased prices or markdowns
How do you tell if a company is financially healthy?
The four main areas that should be looked into to tell if a company is financially healthy are as follows:
- Operating efficiency
Out of these four areas, perhaps the level of the company’s profitability is the best measurement of its health.
Why is financial health important for a business?
The success of a business depends on its financial health. Financial health defines the profitability and performance of a business.
Contact RIZ & MONA to Set Up Your Business in Dubai
The tips provided above can help your organization to improve the financial health of your business. By implementing these tips, most likely, you will be able to keep your business financially healthy. Though there are various other methods for achieving this goal, we have provided you with the best and proven ones.
If you are looking to set up your business in Dubai, UAE, you should get in touch with RIZ & MONA Business Consultancy. We have experienced business setup consultants in Dubai, UAE. Contact us now for more information on establishing your company in Dubai.