How financially healthy is your business at the moment?

• Maintaining a financially healthy company is crucial for business owners as it allows for smoother operations and the ability to focus on growth rather than constantly playing catch-up. However, small business owners often find it challenging to prioritize the financial health of their businesses due to their busy schedules. Neglecting the financial health of a company can be as risky as neglecting one's physical health.

Various factors can impact the financial health of a business. While insufficient sales and high expenses are common reasons for financial struggles, there are other less apparent factors to consider:

Improper tracking of financials, resulting in a lack of awareness of the numbers.

• Delayed invoicing leading to slow customer payments.
• Charging too little or too much for products/services.
• Rising expenses that eat into profits.
• Changing economic conditions.
• Supply chain issues.
• Poor refund or return policies.

Monitoring the financial health of your business is crucial. Just as you might check your blood pressure, blood sugar, or weight to measure your physical health, there are ways to assess your business's financial well-being. Here are some key markers to keep track of:

Cash Flow Management:

Understanding your business's cash flow is essential to determine whether it generates enough income to cover monthly bills and facilitate growth. Operating cash flow measures the money coming into the business from its regular activities.

Revenue and Expenses:

Monitoring your business's income and expenses allows you to gauge how much money it generates on a daily, weekly, or monthly basis. By analyzing revenue trends, you can assess whether your business is experiencing growth or decline.

Debt Management:

Timely payments for business financing and loans are vital not only for financial health but also for establishing good business credit. While debt can be beneficial when utilized for specific goals, excessive debt or using it to sustain a business without sufficient sales can be detrimental.

Financial Planning and Forecasting:

It's important to go beyond analyzing past financials and plan for future expenses or growth. Business financial planning and forecasting involve projecting anticipated revenues and expenses to ensure adequate preparation.

To assess your business's current financial health, consider the following approaches:

Business Credit Scores:

Check your business credit scores and identify any red flags in your credit report, such as late payments, judgments, liens, or collection accounts. If your credit scores are low due to a lack of reporting accounts, take steps to establish business credit.

Balance Sheet Analysis:

Your balance sheet provides a snapshot of your business's worth at a given time, presenting assets, liabilities, and shareholder equity. Regularly reviewing and preparing balance sheets using accounting software is recommended.

Cash Flow Analysis:

Analyze your cash flow by examining your statement of cash flows, which can be generated from accounting software. Positive cash flow from operations is ideal, but consistent periods of negative cash flow should be addressed.

Break-Even Analysis:

Understanding your break-even point helps with critical decisions such as pricing. This analysis considers both fixed and variable expenses, indicating how much revenue is needed before achieving profitability in your business or a specific line of business.

Key Performance Indicators (KPIs):

Establishing quantifiable KPIs allows you to set and track progress toward specific business outcomes. Useful metrics include sales targets, inventory turnover ratio, accounts receivable aging, refund/chargeback rates, and profit margin.

To improve the financial health of your small business, consider the following strategies:

Ensure Proper Business Setup:

Register your business with the Secretary of State to fulfill legal requirements. This step is essential as lenders often request proof of registration when applying for credit or financing.

Separate Business and Personal Finances:

Open a business checking account and use a business credit card for expenses instead of personal accounts. Commingling business and personal finances should be avoided.

Reduce Expenses:

Identify areas where expenses are disproportionately affecting your profits and consider cost-cutting measures. This may involve canceling underutilized services or making difficult decisions such as employee layoffs.

Use Accounting Software:

Utilize accounting software to keep your business financials up to date or hire a bookkeeping service. This allows for easy generation of reports needed to monitor your business's health, as many lenders require financial statements or bank statements for financing.

Improve Cash Flow Management:

Optimize cash flow by promptly collecting payments from slow-paying customers, invoicing promptly, implementing shorter payment terms, or offering discounts for quick payments. Consider hiring a bookkeeping service to maintain up-to-date financial data for regular review.

Increase Revenues:

If your business is not generating enough income, focus on strategies to boost revenue. This may involve adjusting pricing, revising refund/return policies, acquiring new customers, or increasing sales to existing ones.

Debt Management Strategies:

Review your outstanding debts, interest rates, fees, and repayment timelines to better manage your business's debt. Pay attention to your business debt-to-equity ratio, as a high ratio may indicate difficulty managing debt.

Financing Options:

Understand when borrowing money is appropriate for your business. Consider short-term financing options like business lines of credit, business credit cards, business term loans, or cash advances to support working capital or business growth.

• Business Line Of Credit??
• Business Credit Cards
• Business Term Loans
• Cash Advances
• SBA Loans
• Factoring
• Equipment Financing

By understanding the strengths and weaknesses of your business finances, including revenue and expenses, debt management, and cash flow, you can work toward improving the financial health of your small business. Regular monitoring, strategic planning, and implementing appropriate measures will contribute to the long-term success of your business.

If you'd like help with establishing strong credit for your company and increasing your financing approvals?(even if your business is new)...

We have partnered with MyBusiness Credit Builder, a company that offers a proprietary system enabling businesses to run a free scan. This scan helps identify any missing requirements that could improve their eligibility for funding. It's a valuable tool that assists businesses in understanding what they need to address in order to increase their chances of securing financing.

We invite you to?check out?Corporate Credit Secrets and run a free scan.

Is Your Business Bankable? Run A Free Scan To Find Out by clicking on the image below.

About the Author: Daniel Dias is a Business Lending Specialist who assists small business owners in obtaining the capital they need to start, expand, or maintain their businesses. Daniel understands the challenges faced by entrepreneurs and offers a variety of programs with flexible guidelines to help overcome common obstacles such as credit scores, credit history, time in business, financial documentation, and industry type. His expertise enables business owners to secure the necessary funding to achieve their goals and succeed in the marketplace.