How To Improve Your Company’s Financial Management: 4 Actionable Tips

Even profitable enterprises can find themselves under tremendous pressure due to liquidity issues. After all, profits are registered on the date of the sale, but the actual cash arriving at the company could be delayed in time. Meanwhile, creditors, bills, and other types of debt need to be satisfied on their due dates. Without proper financial planning, overcoming such issues could become nearly impossible. Even more so following the impact that the COVID-19 pandemic had on the entire world economy and the still unknown scale of the repercussions that the Russian invasion of Ukraine might have. To survive, startups may need to find professional help.

With the assistance of expert financial advisors and accountants, startups and SMEs (Small and medium-sized enterprises) could be able to put their finances in order and prepare for the challenging times ahead. It is paramount to look for experts that are intimately familiar with the specific regulations and laws enacted by the country where the startup is operating.

For example, with the support of specialized London accountants, a UK business operating in that region will be well-informed and could take advantage of potential grants, programs, or other relief efforts that could have been recently established and would have otherwise gone unnoticed. The experts could also provide invaluable insight into methods and strategies that will help an ailing startup improve its financial management.

 

Make A Budget

One way to make your financial management more effective is by developing a budget plan. This budget will guide certain decisions and allow the company to prepare in advance for potential pitfalls or expected challenges. It can also facilitate making better decisions when it comes to plans for expansion of the operations. The exact allocation of the available and expected funds will depend on the type of business, the industry environment, and the company’s unique circumstances.

Keep in mind that the budget must be periodically revised and updated with the latest available data and adjusted to reflect important developments in order to be effective. Examine the performance of the allocated resources and identify which sectors are producing better than expected results and which are underperforming. Determine if funneling more resources will help improve the current performance or if the funds will be best diverted to a different activity.

 

Research Your Funding Needs

Many businesses turn to outside funding sources to facilitate the growth of their operations or avoid falling into insolvency due to failure to repay outstanding debts. However, not every available funding option is equal, and some may not be appropriate for the particular venture. It is essential to have a precise idea of the type and quantity of funding that the company requires.

Standard financing options include bank loans, grants, business lines of credit, invoice refactoring, or merchant cash advances. Analyze the different terms, benefits, and downsides of each one and compare them to the company’s current state. Is the business strapped for cash and needs an urgent injection of fresh funds? Can you renegotiate the current repayment terms with the existing creditors and thus lessen the pressure on the business? Answering such questions before taking on any additional debt is critical.

 

Utilize Financial Forecasts

Many established businesses took multiple years to reach profitability. After all, with proper management of its finances, an operation can be sustained for as long as there is sufficient cash flow to support it. However, when it comes to startups, the time frames are drastically shortened, with most needing to achieve profitability in the first 1 or 2 years.

Through financial forecasting, it is possible to estimate at what point you should expect the company to become cash-positive. In essence, financial forecasting is a tool that can assess profitability by examining past and present financial conditions. A good guideline is to be conservative in your forecast by cutting down the expected revenue and increasing the expenses for at least six months to a year. This way, businesses can avoid overspending.

 

Outsource Non-core Tasks

Nowadays, companies can relegate necessary specialized tasks that are not core to their business plan to outside experts and firms. Accounting, marketing, and web support are all common choices for outsourcing. They are crucial elements of becoming a successful venture, but many startups and SMEs do not have the necessary resources to build teams or departments dedicated solely to them.

Instead, evaluate all tasks, identify those that should be considered the business’s main priorities and that have the greatest return on investment, and concentrate your efforts and funding on them. The rest can be outsourced to external experts that offer competitive rates. Outsourcing can be viewed as a strategy that enables businesses to dedicate their limited time and resources to growth and expansion activities.

 

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