How to Ensure Your Business is Financially Sound


Can your business stand the stress test? Small business finance is generally built on a quicksand. A small shock may likely plunge the business into the doldrums. As a businessperson, it is important to be aware of the bigger picture as far as your finances are concerned. This will allow you to make the timely moves that may end up saving your business and putting it on a surer financial footing.

Evaluate your financial strength

Assess your finances and determine if you are in the best financial position. There are various aspects you can consider when giving your business a financial health check. For example, how much debt do you currently have and what do your creditors owe you? When doing a financial assessment, it is more prudent to have concrete data on how your business is doing instead of just a general perception on your business performance. Where you are unsure, seek financial advice from an accounting firm Melbourne professional or a financial advisor.

Is your business showing any warning signs of poor financial health?

Businesses send various warning signals when the financial situation is hitting a critical stage. You could be seeing a decline in your sales and turnover, having difficulty paying off your bills or suppliers or your finances could be over-leveraged. All these are generally signals that you are approaching the precipice. You are headed towards the cliff and the business is sending your signals so you can begin mitigating the problem.

Here are things to look for when assessing the financial health of your business:-

  • Are you struggling to make debt repayments?
  • Is your business struggling with cash flow issues?
  • Are you struggling to meet your expenses?
  • Are your business margins declining?
  • Are suppliers mounting pressure on you to pay up outstanding invoices?

Should you find yourself grappling with any of these challenges, talk to an accountant Melbourne expert or a financial advisor to help you make sense of these danger signs.

Analyze and Prioritise your Debts

Most businesses will eventually have multiple creditors but managing them can be a challenge and some debt obligations may eventually fall off the radar. Sit down with your financial advisor or accountant and go through all the debts. List and prioritize your debt obligations so you can know which creditors to pay first.

Create a list of all the creditors and determine how much each of them is owed. Identify the key creditors whose payments need to be expedited as soon as possible. These can be payments that have been outstanding for quite awhile or those creditors that are a critical cog in the wheel of your business machine whom you cannot afford to disappoint. After setting your priorities right, you can take the next steps such as structuring out the payments or negotiating with your creditors for new payment terms. Prioritizing allows you to plan and budget with some precision.

Review your marketing costs

One of the biggest expenses incurred by many small businesses is the cost of marketing. Businesses pump thousands of dollars or tens of thousands of dollars in marketing their merchandise. Marketing is no doubt an integral part of any business operations. It is the key to generating high quality hot leads that will eventually buy your products. .

However, marketing must also be strategic and highly targeted otherwise it will just be money down the drain. When you add some expertise and precision in your marketing and are enjoying some good conversion rates, the cost of acquiring a customer actually comes down. If you find yourself throwing in a lot of money in your marketing budget and not getting commensurate leads and business turnover, maybe it is time to review your marketing strategy.

If you will be hiring a professional marketer for your marketing needs, they must demonstrate an ability to deliver an ROI on your marketing expenses. If they can’t, then simply drop them as they will be burning your money and inflicting losses on your business thereby putting you in a precarious financial position. Treat marketing as an investment and not as routine monthly business expenditure. It is something that you must leverage to provide better returns otherwise it is not worth the investment.

Chase your invoices

Australia has always been classified as one of the worst countries for invoice payments with an average invoice payment time of 26.4 days. Australian entrepreneurs waste a lot of time chasing invoices and that not only impacts the business productivity but also the cash flow. According to data by the Australian credit reporting agency Dun and Bradstreet, some $19 billion is locked away out of the reach of businesses due to late creditor payments.

The late payments don’t just impact the business cash flow. They also increase the administrative and financial costs, destroy business relationships and trust, cause business uncertainty and stunts the potential of the business to make new investments. Late invoice payments have a weakening impact on businesses and for the small and vulnerable Australian businesses, they reduce the competitiveness and compromise the very survival of the business. Some 90% of Australian businesses collapse due to poor cash flow which is often occasioned by late payments.

What you need is an invoice payment strategy. The default way to handle late invoices is by sending regular reminders. The situation can sometimes be more difficult and may require that you to sit with your clients, review invoice payment terms or renegotiate the contract terms. The most important thing is that you should take action when grappling with invoice payment issues. Reminders may suffice but sometimes, you need a broader strategy for dealing with the various types of late-paying customers in order to protect your business cash flow.

Business is tough. This is particularly so for owner-managers on whose laurels the success of the enterprise rests on. Once in a while, it may be prudent to step back from the daily operations so as to give your business a critical look and put it on a surer financial footing.

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