Keeping your business in good financial health at all times is key to being successful. It’s well-known that about 65% of businesses will die within ten years, but what’s not well-known is that a vast majority of these businesses will die because of financial challenges.
Maintaining a strong cash position doesn’t just keep your business alive. It can give you a competitive edge in the market as well.
Keep reading to learn a few effective strategies for strengthening your business finances.
Adequate Working Capital
When you start a business, there are working capital requirements you need to satisfy. However, some business owners opt to start without adequate working capital. This is a big mistake.
Unlike startup capital that’s used up in launching a business, it’s working capital that funds the operations of the business until it starts generating enough revenue reliably. The amount of time a business can take to become cash-flow positive varies, and this is where things can go wrong.
If you run out of working capital before the business generates money, you have to find other ways of keeping the business funded. If you can’t, disaster awaits. As such, don’t start a business until you have adequate working capital at hand.
Minimize Financial Liabilities
Examples of financial liabilities in business include accounts payable, loans, and deferred revenues.
Left unchecked, these liabilities can outstrip financial assets, putting the company in a negative financial position. This is why, to maintain a strong cash position, you must work to minimize the business’s liabilities.
For example, avoid purchasing too much inventory on credit. It’s sound practice to have more inventory than is needed at any given time, but what if there is a business disruption? You’ll be stuck with inventory that doesn’t turn over, and the suppliers will still demand to be paid.
Updated Cash Flow Projections
You probably have an idea of how much your business is going to pull in over the next month, six months, one year… and so on. But how updated are your projections?
If you’re working with cash flow projections you made 12 months ago, they’re probably out of date. As economic and market conditions change, your business’s cash flows could be affected, negatively or positively. It’s the negative consequences that you need to keep in mind when updating your cash flow projections.
If you’re projecting a decline in revenues, be proactive about reducing your expenses accordingly.
Hire a Revenue Specialist
Most small businesses operate without a chief financial officer, or any financial specialist for that matter. The founder/business owner also doubles up as the finance guy.
But while a financial officer is a great hire, your business also needs a revenue officer to help the business maintain a strong cash position.
So, what is a chief revenue officer? This professional works alongside sales and marketing teams to increase a business’s inflows.
A Strong Cash Position Is Good for Business
A strong cash position gives your business a lot of flexibility. You can hire more workers when needed, run aggressive marketing campaigns, or even acquire competitors. But to reach such a cash position and maintain, work has to be done.
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