Did you know that almost 50% of small businesses fail within the first five years? Building a strong financial health strategy for your business is crucially important for short term and long term success. It can be quite challenging to maintain a solid financial footing especially when it comes to money management. Do you own a small business? Here’s how you can improve your financial position by simply incorporating the following financial health strategies:
Calculate Your True Costs
Do you feel tempted to throw some sort of celebration when your business goes through a good month? Well before you go a bit overboard, it may be beneficial to take into account any related additional costs. For instance, your Marketing efforts are definitely paying off if you begin to notice improvements in your signage, online ads and your online community. Calculating your true costs means you should compare how much you spend in relation to your revenue in order to figure out your return on investment (ROI). By doing so, you will know whether you should consider making the same expenditures in the future.
Minimize Your Overhead Costs
Running your own business means that you’re required to spend money just as much as you’re entailed to make it. Your overhead costs are your indirect costs which can engulf a big chunk of your revenue. Overhead costs don’t necessarily include expenses that arise from the production of a good or service, but they are actually independent of revenue. Reducing losses can be done by reducing overhead costs related to rent, utilities, insurance, administrative costs, and marketing.
Love Your Numbers
Believe it or not, but sometimes the best way to make sure your business remains solvent is to live by your numbers. Revenue, payroll, expenses, and overhead are important numbers you should not take too lightly. Learn how to balance sheets, read spreadsheets, forecast sales or create financial models. Many of us claim to hate numbers, when in reality, we just hate doing the math. But in order to build a strong and healthy financial strategy, you’re going to have to love the numbers that make your business, and learn how to work your way through them.
Consult Your Cash Flow Statements
Many small businesses fail due to cash flow management issues. A healthy cash flow system will open doors of success for your business. A lack of cash flow is a sign of unstable financial health for investors and stakeholders. If you want your business to avoid a tragic event, then make sure you constantly consult your cash flow statements and try to gain some fruitful insights from them to help you efficiently run your business.
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Written By: Fatima Rassool