4 Ways to Improve the Financial Performance of Your Business
Monday, September 24, 2018, 6:00 PM | Leave Comment
Finances are one of the top priorities, as well as one of the top concerns for every business owner.
Your financial performance determines your business success and its overall performance on the market.
Without a stable financial situation, your business can easily fail. Financial performance also includes your company’s financial health, as well as how effective your business is at leveraging its assets to produce good revenue.
Financial mistakes can be costly, and not just in monetary terms.
Your business can easily end up in legal troubles for making a financial mistake. These consequences can easily ruin your business as a whole. That’s why it’s important to focus on finances and ensure your business can continue to perform well on the market.
Finances require a lot of dedication, effort and good planning. That being said, here are a few ways in which you can improve the financial performance of your business.
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Analyze your current financial performance
Improving your financial performance begins with understanding how your business currently performs. You must be aware of the situation in order to identify which aspect requires improvements.
The best way to have an insight into your company’s current financial health is to have your accountant prepare a balance sheet. A balance sheet is a document that portrays your business assets, liabilities, as well as your equity as an owner for a specific period of time.
A balance sheet encompasses an income statement, cash flow statement, accounts payable, accounts receivable, equity and earnings among other things. This document shows where your company currently stands from a financial point of view. By reviewing this document, you’re able to assess the financial status of your business and identify aspects that need improvements.
The more insight you have into your financial situation, the easier it becomes to improve it.
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Focus on the cash flow
Cash is your most liquid asset, which makes it the most important and valuable asset too. Cash allows you to make immediate payments whether for expenses or for investments. In short, cash keeps your business financially healthy.
Cash flow is determined by identifying how much money flows into your business and how much flows out. You can do this by comparing accounts receivable and accounts payable. If you have more money coming in than going out, your cash flow is positive.
On the other hand, if there are more expenses than incomes, you have a negative cash flow. Without cash, your company can easily go bankrupt even if you’re generating good revenue and profits. That’s why you must always strive towards having a positive cash flow.
Many business owners focus on in-house strategies for improving cash flow, while others set up a working capital or line of credit to sort out cash shortages.
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Be wary of convenience
One of the major factors for your company’s financial performance is getting paid on time. Offering products and services to customers generates profits and revenue, but getting paid generates cash.
To clarify, when your business records a sale, it’s recognized as revenue and profit. However, you may not get paid until a later date. You still pay an income tax for your sale, but it may take 30, 60 or even 120 days before you actually get paid.
This particular case is common for invoice payments. Invoices are a great way to offer convenience to your customers aside from offering multiple other payment options. Still, this convenience, although important for customer relations, may hurt your financial performance. Nevertheless, you can always ensure that you maintain both.
Opting for reliable business factoring allows you to cash in on your invoices early while also offering convenience to your customers. Simply put, a factoring company pays for your invoices and then collects payments from customers when the invoices are due. In short, ensuring that you get paid on time also ensures your financial health.
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Cut down on overhead costs
Overhead costs are expenses every business has that helps keep them operational. Unlike operational costs that are tied to production, manufacturing, marketing and labor, overhead costs are expenses that yield no return on investments. For instance, travel expenses, taxes, bills, utility and maintenance, rent, accounting fees, legal consulting fees and so on are all overhead costs. In other words, they are a necessary money drain.
However, even though these costs are in fact necessary, it doesn’t mean you must spend a fortune on them. By reducing your overhead costs, you improve your cash flow and cash on hand. The money you save can help ensure your company’s financial health.
You can cut down on overhead costs by opting for cheaper plans or by unsubscribing from services you don’t commonly need or use. Maximizing incomes and minimizing costs ensures stable financial conditions and good financial performance.
Business success revolves around its owner’s ability to ensure good financial health for their company. Many owners neglect finances and focus on growth opportunities. However, if your business isn’t able to financially sustain itself, no marketing efforts or business strategies will be enough for your company to succeed. That’s why it’s crucial to improve the financial performance of your business and ensure it can grow and develop further.
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