Good business health isn’t achieved by accident. The best medicine involves ongoing financial maintenance and the development of tonics to cope with periods of ill health.
Of crucial importance to the success of any business is the continual observation of the company’s financial health.
In most cases, it is too late to stave off disaster once adversity has struck and the business is haemorrhaging funds – a preventative approach can get the best results in a crisis while also generating a boost to efficiency and productivity on an ongoing basis.
Planning, Planning, Planning
Spending time to properly plan the operation and expansion of a business is a valuable investment in its future.
As a starting point, accounting software is a useful tool for tracking and reporting cash flows. Digital tools are also available to oversee stock control, invoice receipts, payroll management and web-based marketing.
Return on Investment
During periods of strong growth, it can seem like money is on a loop. Yet strong revenue inflows can mask inefficient spending on areas such as marketing, supplies, utilities, staffing and product development. These inefficiencies can drain a business of valuable revenues when hard times arise.
A regular test of the returns generated from all areas of expenditure will strengthen your business to face any potential adversity as well as deliver additional capital with which to fund expansion projects.
Risk Management/Contingency Planning
Nobody sets out to fail in business, but sadly one of the reasons many small businesses are forced to close their doors is failure to have risk-management strategies in place.
Managing risk is a multifaceted aspect of business operations, which at its most basic should include business insurance as a means of protecting income.
Yet contingency planning is something all businesses should establish from the outset and update regularly. Include aspects such as:
– How to replace key skills and knowledge should a valuable employee leave
– The anticipated sales life span of major products
– Strategies for overcoming short-term cash shortfalls
– Professional Oversight
Nothing is more valuable to emerging businesses than the benefit of professional oversight. Sourcing a reputable accountant is a sound investment in providing a broad and independent overview of the business. It can also free up your time and energy to work directly on managing the business. A bookkeeper can also be a valuable asset to your business for managing day-to-day finances.
Don’t think that evaluating your financial health is something only to be done when adversity strikes. By being prepared and carefully planning all aspects of your business operations, you can achieve a stronger, healthier company now and into the future.
Interested in testing your financial health knowledge? Take the Financial Literacy Quiz and find out how skilled you are when it comes to business finance.