Five ways small businesses can strengthen financial footing

Monday, 23 August 2021, 3:31 pm
Press Release: Kalkine

While possessing and operating a small business appears incredibly exhilarating and rewarding, it is not all glitz and glamour. Small business owners need to overcome various challenges while starting, running, and growing a business. One such imperative challenge is maintaining a solid financial footing, which requires small businesses to implement some effective strategies to keep their entities in the green.

Notably, businesses that tend to retain strong financial flexibility are far more likely to enjoy long-term success. Meanwhile, a robust financial foundation allows small businesses to stand against financial pressures in an unforeseen situation and seize a profitable opportunity. In other words, it enables businesses to come up with the required cash without incurring adverse financial situations in the present or the future.

It will not be wrong to say that there is a direct correlation between having a firm financial footing and running a profitable business. Towards this end, let us discuss few enticing ways through which a small business can build a sound financial base:

1. Track and report your financials accurately

The ideal way to ensure solvency in a business is by building out the systems to accurately track and report financials. Such a process allows small businesses to stay compliant while streamlining their expenditure or income-centric initiatives across the board. Meanwhile, financial reporting enables businesses to identify both present and past trends, which can empower them to tackle any potential weakness and improve the overall health of the entity.

To track financials, businesses can formulate a realistic and detailed budget, which sets the framework for their finances. Meanwhile, businesses can closely monitor and analyse their profit and loss and monthly cash flow statements to gauge their profitability & cash position and make informed decisions.

1. Ensure effective accounting system

It is also essential for small businesses to have an effective accounting system, which helps them measure business growth and identify areas that need improvement and attention. The effectiveness of an accounting system relies on how it is formulated and maintained. Such a system should be set up to closely reflect a business’s operations, including its various sources of revenue and expenditures.

A reliable accounting system holds the power to convert data into a format that reveals an entirely personalised and interactive story about your business. While there are multiple accounting software systems available in the market to choose from, businesses can have a professional with prior knowledge of the accounting tools to ensure accuracy and flexibility in such systems.

1. Manage your business bills well

Keeping up with business bills or invoices is vital for small businesses to achieve sound financial footing. Every business intends to be paid on time; however, a minor act of negligence in business bills can trigger innumerable financial troubles and prompt poor cash flow. Thus, businesses should ensure that they send out invoices quickly and systematically to allow payments to hit their bank accounts faster.

Meanwhile, invoicing can sometimes be tedious as it demands dealing with the records of multiple clients, their previous records, transactions, credit details, etc. To dodge such difficulties, businesses can adopt a comprehensive strategy to produce, send, and keep track of their invoices. Automating billing while setting up recurring billing is one such effortless technique to manage invoices.

1. Build business credit

One thing is common in most financially healthy businesses - a robust understanding of credit products and an enriching experience using them. In fact, being able to access business credit can be a break it or make it moment for businesses, particularly in case of an unexpected event.

Thus, small businesses need to establish business credit, which helps them experience the advantages of having good business credit, maintain a credit history and exhibit separation between owners and the business. Besides, business credit also works as an important tool for formulating relationships with vendors and other business-to-business sellers.

Building business credit may seem like a daunting process to some small businesses. However, companies can begin by taking small steps to establish business credit, like obtaining an Employer Identification Number, opening business bank accounts, and setting up a dedicated phone line for their business.

1. Minimise overhead expenses

Overhead expenses are one area that can quickly become a drain on business revenues and could be cut back with minimal risk. In fact, minimising overhead costs can help businesses stay afloat even during periods of low sales and economic downturns. Such costs primarily comprise professional expenses, administrative costs, insurance, rent payments, utilities, licenses and permits and office equipment.

Though most overhead costs remain consistent each month, businesses can limit or eliminate some of these costs by embracing cost reduction strategies. These strategies include outsourcing specific business duties, shifting to remote working, reconsidering software upgrades, or going paperless. The aim should be to cut some small expenses here and there, which can add up significantly over the long term.

Remember, the success of any business is determined by its financial stability that ensures its smooth functioning and makes it profitable. Thus, small businesses should make it a priority to bolster their financial footing before investing in their business expansion and exploring other related opportunities.

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