Almost every business will face a financial challenge at some point. And when they happen, most businesses find themselves scrambling for lines of credit or making cutbacks.
You may not be able to avoid these situations, but there are several things your company can do to be better prepared for them. Taking a strategic approach to your financials will make it easier to survive these situations and easier to start growing again once they pass.
One of the best ways to keep your finances in order to be very conservative when calculating how much money you’ll have on hand, and your receivables. When looking at your pipeline or sales projections, make it a point to think about worst-case scenarios. For example, what happens if a big deal you have in the pipeline falls through? You don’t have to be a pessimist, but don’t assume that you’ll have the money you expect to.
The right insurance policies can protect you from many business financial risks. At minimum, make sure you have the right levels of liability insurance coverage to deal with lawsuits. You might also look at payroll insurance and catastrophe insurance to provide cash flow during tough times.
You can also look for ways to reduce your insurance premiums. For example, improving document security by contracting with a document management company like Vital Records Control could lead to lower premiums because you’re are reducing risks.
Finding ways to save money is probably the best way to improve your financials. Look at your vendors, staff, and typical operating costs and then start looking for ways to reduce or remove these costs.
The trick with reducing operating cost is to balance short-term and long-term needs. For example, a piece of machinery may seem expensive when it’s not running at full capacity and you might decide to sell it or lease instead of buy. But if you also consider the cost to purchase and the opportunity cost of lower production capacity, then it may be worth it to keep the machinery. Yes, this can be a little tricky, but doing these types of calculations will pay off in the long-run.
The best way to improve your financial preparedness is to analyze your situation and then develop a strategic plan for optimization. Take your time to do it right and you’ll find that things steadily improve.