This is the secret to your small business success. Management must focus on their financials which can fall by the wayside when your consumed with the day-to-day operations. Unfortunately, losing sight of a company’s financial health, even for a brief period of time, can result in big problems. Financial problems are insidious which creep up slowly and often go unnoticed. Before the owners realizes what’s happened, a business can be drowning in debt and strapped for cash. Keep a close eye on these 5 key small business finance tips to ensure that money problems are dealt.
Small Business Finance Tips – 5 Key Areas for SMEs
Starting a new business is an exciting process. Watching the seed of an idea grow into a successful venture is rewarding in a way few other things are. Small business owners get so caught up in day-to-day operations that they never get to enjoy the growth process. Besides losing track of some of the most important big-picture aspects of running the business. Losing track of things like accounts, debt payments, and cash flow is easy. Here are 5 key small business finance tips that business owners absolutely must keep an eye on, and what they can do to ensure each is properly managed.
Small business finance tips #1 – Accounts Payable
Companies absolutely must stay on top of accounts payable at all costs. Losing track of money owed to suppliers is a recipe for disaster. Accounts payable can snowball if it becomes more and more difficult to get them back under control. Going into default on an account can have enormous consequences. Including a tarnished reputation and difficulty getting credit extended in the future. Suppliers are also under cash-strains, which won’t be appreciated and could result in a decrease in service quality.
Small business finance tips #2 – Accounts Receivable
It’s hard to stay in business without getting paid. Customers uncollected accounts receivable will choke off cash flow and can become a huge problem for businesses without large cash reserves. Once the cash dries up, just covering daily operating expenses can become a fight for life and death. It’s incredibly important to have carefully and clearly defined payment terms that customers not only understand, but respect. Supplier-customer relationship may become strained when you’re following up on unpaid accounts, but its crucial to manage cash flow.
Small business finance tips #3 – Credit and Financing
Few businesses can get by without leaning on credit from time to time. Whether it be a company credit card for client lunches or financing for large-scale capital projects, borrowing is a part of doing business. Lenders who extend credit its all about risk management. Applicants deemed likely to pay are likely to be approved. The business owner with risky history are more likely to be declined, and to face higher rates when credit is extended.
Businesses must keep timely payments on existing debt to maintain healthy credit score. Companies sometimes discover that lenders consider them risky for reasons beyond their control. Businesses can look to alternative sources of financing, like unsecured business loans and merchant cash advances. These loans have higher approval rates and less stringent requirements than compared to the banks.
Small business finance tips #4 – Managed Expansion
Businesses become excited when growth is happening quickly, and many get into trouble when they get caught up in unchecked expansion. Growing too fast can result in out of control debt, cash flow starvation, or often both. This small business finance tip is very important to approach growth strategically, with a long-term view. Companies should never jump into expansion without carefully analyzing things like how much they can realistically afford to borrow. The company should look to mitigate the potential risks of growth, and how they’ll continue to meet their short and long-term obligations.
Small business finance tips #5 – Finance Ready
When small business owners need to demonstrate their credit worthiness to successfully obtaining capital, a key factor is the quality of a credit funding application. Besides providing a current business plans, cash flow forecast, proven profitability statement and a track record of paying bills on time. Therefore, small business owners need to maintain detailed records of their operations and keep their business plan current in preparation for seeking capital.
When applying for capital, SMEs need to think like the lender. Consider what the lender or banker would need to see to believe the business is a good investment. Banks and alternative lenders place the greatest emphasis on past trading performance and will discount forecast revenue from proposed growth. To prepare the business for lending, the small business owner must to be aware that stretching payments to creditors, such as the Australian Taxation Office, may be seen by a financial provider that the business is not able to meet its debts on time. Similarly, claiming all development costs up front can reduce the apparent profitability of the business. Where possible, SMEs should seek capital before it is needed. (Based on The Australian Small Business and Family Enterprise Ombudsman data June 2018)
Call Accrutus Capital today at 02 9006 1327 and speak to your finance specialist at Accrutus Capital for more information about alternative SME money options. We might just be able to help boost your business with up to $100,000 instantly, with no security required.