Let’s talk money; it’s a business favorite topic.
No matter where your small business is on its growth journey, effective financial planning is essential. But finances are not every leader’s strong suit, and weaknesses in your current plan may be bigger hurdles than you think. See these tips to help you firm up your finances and fortify any vulnerabilities that might be interfering with your long-term growth goals.
Approach to late payments
Late payments from clients can be a huge barrier to a healthy cash flow, especially if it becomes a habit. If a business has too much money sitting in invoice purgatory, this could ultimately contribute to financial failure. If your current approach to unpaid invoices is to call, hope, and call again, it’s time to think again. Consider getting a little more creative with your tactics, like offering small discounts or other incentives for early payments. For example, offer a 2 or 3% discount if the invoice is paid within 15 days. Or 5 early payments get a 5% discount on the 6th bill.
There are also times when clients, no matter how friendly they are, or how long they’ve worked with you in the past, become toxic and bad for business. Set up an exit strategy for these types and stick with it. Waiting on five or more unpaid invoices? Don’t open yourself to any more loss, cut services, and hold firm until they are caught up. Incorporating late payment fees can also be effective, but not for a customer that has racked up so much debt they’ll never be able to fully settle.
Track all expenses
Are you a person that buys coffee or lunch every day in your personal life? A weekly pack of gum, or rent a movie every Friday? Do you always track these expenses closely? Probably not, but they do add up, and while that cup of coffee might not be the make or break for your personal budget, small expenses can add up in your business in a similar, and even bigger way. It’s important to track all business expenditures, as doing so can help make clear areas where you can trim.
Labor is a good example of this. Many managers gravitate towards hiring new employees to meet labor needs, but sometimes it can be more cost-effective to hire a pay-per-task freelance or temp depending on how often the job is needed.
Stock is another area to keep close tabs on. Ordering too much material, or too frequently will increase your monthly expenses unnecessarily, and there’s no reason to spend money on things you can’t quickly turn for a profit.
Fraud can open your business up to a myriad of vulnerabilities and can have a huge financial impact. Investing in proper cybersecurity and fraud protection is a relatively small step you can take now that could save you in big ways down the line. Make it a priority to stay up to date on anti-virus software and train your employees on signs of phishing scams.
Scammers are becoming incredibly advanced, it’s no longer just tricks aimed at children or the elderly. For example, a fake check scam occurs when someone “overpays you” via check and requests that you wire them the difference. By the time your bank realizes the check is fake, it’s too late. Or an email you or your staff receive requesting information or containing a dangerous link may appear as though it’s coming from a close and trusted client or colleague, however, if you check the email address itself, there is a minor difference and this individual is being impersonated.
Visit the FTC website for more details on common scams against small businesses.
Knowing when to invest in your business—and yourself
Knowing when the right time, and how much to invest back into your business can be tricky. On the one hand, you don’t want to go bankrupt buying all new equipment, but on the other, your slow or faulty equipment might be losing you money in the long term. Investing in your business is important and can ultimately increase cash flow, as long as you do your research and make strategic decisions that will maximize profits in the long term while not causing financial failure in the short. There is not a blanket answer to “should you invest in your business.” The real answer is, that it depends. But knowing your most profitable reinvestment opportunities and how much you can realistically spare now to maximize future growth is a great first step in making a decision that’s right for your business. If you need some expert support with this, a business diagnostics session could be a good next step.
As Jim Rohn has said, “Income seldom exceeds personal development.” In other words, you won’t get very far without investing some funds into your own professional growth. Set aside a certain percentage of your profits dedicated solely to career development and continuing education. This money could go towards a business class, seminar, or industry conference to learn about the latest trends.
You could also consider investing in a business coach. Financial guidance and tips are helpful but not a one size fits all solution, and a coach can work with you to identify your business’s unique needs and tailor a custom plan targeting your profitability goals.
Eagles’ Wings Business Coaching offers personalized business and financial coaching with a licensed coach for small business owners and entrepreneurs across the United States looking to improve and grow their company. In addition, we can provide you with a complimentary virtual coaching session to get started or see other ways to help your small business.