If nutrition, exercise, and sleep are the pillars of our physical health, the pillars of financial health might read something like budgeting, profits, and efficiency.
Many factors influence our business’s financial health, from fluctuations in market prices to loans to new marketing techniques. If you’re looking for ways to improve your company’s financial help, we’ve compiled a list of tips to get you started.
The first step in improving your company’s financial health is gauging where your finances are currently.
Is Your Company Healthy?
Tim Stobierski, a marketing specialist and contributing writer for Harvard Business School Online, claims if you don’t understand your company’s financial health, you can’t optimize your time. You’ll end up working on “projects with no clearly defined return on investment or initiatives that don’t contribute to the well-being of your company.” In other words, you won’t be working efficiently.
According to Stobierski, the best way to understand your business’s financial health is by conducting a financial statement analysis.
Jaymee Messler, CEO of The Gaming Society, explains, “A financial statement analysis means looking through various financial documents to gauge a business’s financial performance. You can use balance sheets, income statements, and cash flow statements to observe your company’s performance in general and at specific times. These documents show what you’re spending compared to what you’re earning. They allow you to make informed business decisions. Promising financial statements also inform creditors that your business is a lucrative investment opportunity.”
When analyzing your company’s various financial documents, you want to consider more besides your overhead costs and revenue.
“Profits are only one aspect of a company’s financial health,” says John Jacob, CEO of Hoist. “You want your company to be making more than you’re spending, but that goes beyond your revenue and operating costs. You have to consider how much you possess in assets, what liabilities you owe, and how much equity you have in the business. There are key performance indicators that can give you a detailed view of your company’s performance. If you don’t look at all of these factors, you might be overlooking expenses and actions that negatively impact your business.”
After conducting financial analysis, you might notice overspending patterns, insufficient funding, or small profit margins.
It’s best to spend less whenever possible. You want to pay employees a fair wage and deliver quality products and services, but there are other areas where you can reduce your spending.
Jordan Duran, Founder and Designer at 6 Ice, explains how businesses can lower their costs for supplies and production.
Duran claims, “You may be spending more than you need to on materials and other resources. Explore options for discounted supplies through large retailers. Depending on how much material you need, it might be cost-efficient to look into wholesale prices. When it comes to production costs, see if you can reuse or sell materials. Consolidate your workspace. If you have unnecessary space, you might be able to lease it to individuals or other businesses.”
You can also make your business more energy efficient to save on production costs. Australia’s business sector suggests limiting your electricity use, comparing energy contracts, and selecting appliances that cut your energy bill. For more information about making more energy-efficient choices, visit Australia’s government website.
You can also cut unnecessary or ineffective expenditures. If there are any expenses you can cut without negatively impacting your business, employees, and customer satisfaction, cut them. In other cases, you might be spending more than necessary.
“Take stock of your necessary expenses. Do you need everything you’re paying for?” asks Jared Hines, Head of Operations at Acre Gold. “For example, you need insurance, but is your insurance plan charging you for double-coverage? Are your rates with your current insurance company significantly higher than their competitors? If so, consider switching to a company or plan that works better for you. Some costs are unavoidable, but that doesn’t mean they can’t be affordable.”
Required costs are often in the form of debts. Starting and running a business requires taking on some debt. Business loans and investments, and the interest rates that come with them, are part of your expenses. While you can’t write them off, you might be able to rearrange them.
When it comes to paying back debts, you might find that your current payment plan isn’t supporting your business’s financial health. If this is the case, don’t worry. You’re not stuck.
Lauren Kleinman, Co-founder of The Quality Edit, states, “You’re free to choose a repayment plan that supports your business goals. If you’re paying back various debts at different times and in different amounts, you might be spending more in the long run. Look into consolidation options. You might be able to refinance your debts into a lower interest option. You can then calculate your desired payments into the total costs of running your business to get a better idea of where you’re landing financially.”
When it comes to debt, sometimes you’re the one that’s doing the collecting. Recovering outstanding payments from your buyers is another way to improve your company’s financial health. Look back through the terms and conditions of past purchases to ensure your customers are paying you on time.
If you’re feeling overwhelmed in dealing with debt, the Australian government’s business sector provides resources for managing debt.
Another area where you can rearrange your spending is your company’s inventory.
“To improve your company’s financial standing, look at your inventory and your assets,” says Michael Hennessy, Founder and CEO of Diathrive. “Inventory includes all of the goods and materials you possess that you plan to exchange or sell. Ensure that the items in your inventory are relevant and useful, and retire any that aren’t. Acquire items that are in demand, and keep them in stock. If your cash flow is low, it might be a good time to hold off purchasing different items. Managing your company’s inventory allows you to reduce costs, build an accurate budget, and acquire products that sell.”
As a business leader, you’re responsible for acquiring and managing company inventory. You also have the power to price these items when selling them to customers.
Change Your Prices
For better or worse, fluctuating prices are a natural part of our economy. When running a business, you can manipulate prices for your goods and services to maintain financial health while honoring the customer.
Zach Letter, CEO of Wonder Works, states, “If you notice certain products aren’t selling, it’s time to consider offering markdowns. Lower prices attract new sales, and it’s better to sell products for something rather than having them go to waste. On the other hand, if you’re experiencing rising costs for your supplies, you can compensate by raising your prices so long as you’re complying with pricing laws.”
Though increasing prices can worry customers, there are other ways you can support their spending and make their experience pleasant and stress-free.
“Offering multiple payment methods makes the shopping experience more convenient for customers,” says Haim Medine, Creative Director of Mark Henry Jewelry. “You empower customers to use the form of payment that works best for them, and you increase the likelihood that they will purchase from your business again. Your target market expands when you accept multiple payment methods. If you only offer one or two options, you’ll probably miss out on sales.”
Another method for increasing sales is expanding your marketing techniques.
Explore Marketing Strategies
Effective marketing increases brand awareness and draws in new customers. You have to dedicate part of your budget to marketing. Thankfully, there are many cost-efficient strategies you can implement.
Julie Harris, Co-CEO and Head Of Coaching at Tim and Julie Harris Real Estate Coaching, claims, “Marketing can seem like a double-edged sword. Expanding your marketing efforts costs you money, but it also gains you new customers, which makes you money. Ideally, the benefits of your marketing outweigh the costs. With affordable strategies like social media outreach, you can experience significant increases in web traffic and purchases without the more expensive advertising options like billboards.”
The final tool for financial stability is seeking out assistance.
Improving your company’s financial health may be a daunting task, but you don’t have to do it alone.
Ryan Rockefeller, Co-founder of Cleared, states, “Asking for advice from an accountant or advisor can clear up confusion and give you a game plan. It’s always helpful to seek counsel from a specialist. If you’re looking for additional financing options, you can also look into grants offered by state governments. Small and medium-sized businesses are essential to our economy’s health, so governments often provide financial assistance. Since the pandemic began, there have been greater options for loan forgiveness and business relief funds.”
To find assistance options for businesses impacted by COVID-19, explore the Small Business Administration.
We hope this list has given you direction for improving your business’s financial health. Remember your pillars: budgeting, profits, and efficiency.