Every business relies on a healthy cash flow and good financial management to survive and grow. Maintaining proper bookkeeping and making sound financial decisions will also lead to faster growth and better control over the business in general. As a business owner, your business finances are very important.
It is necessary to know how to protect your business financially. While the market is growing at the moment, there are times when your business cash flow isn’t as healthy as it needs to be. Here are some of the things you can do to protect your business financially during the more difficult times.
From Fixed to Variable Costs
Fixed costs, also known as overhead costs, are what will hurt your business the most when there aren’t enough orders coming in. Your revenue is lower but the fixed costs are still there to be paid. Not only can the fixed costs reduce your margin substantially, it can also eat into your cash reserve rather quickly.
There are ways you can turn fixed costs into variable costs. You may not be able to do anything about rent or equipment maintenance, but you can take steps to convert other overhead costs into variable costs. Instead of hiring new employees to handle spikes in sales, for instance, you can instead opt for other solutions such as seasonal temps or outsourcing.
You can also invest in making the whole business more energy efficient. This will lower your energy bills by a substantial margin, allowing you to regain control of your overhead costs at the same time.
Sticking with overhead costs, loan repayment is another monthly expense to keep an eye on during slower times when there aren’t many orders coming in. Some of the loan repayments that used to be sensible for the business may not be unaffordable. It is time to do some negotiating.
According to studies compiled by the online master of financial economics program of Ohio University, more than 70% of businesses who choose to renegotiate their loans can survive difficult times better. It is worth noting that banks need your business to remain healthy so that you can repay what you owe them.
Negotiation skills are important in business financial management, which is why students pursuing their online MFE degree are not only studying the art of financial analysis but also skills such as negotiation and deal-making.
Find New Sources of Income
Speaking of deal-making, there are ways for your business to earn additional income from new sources. The financial market, the wealth of investment opportunities available today, and even diversification of the business itself can all lead to new sources of revenue and a better financial health in general.
This is something that needs to be planned in advance. The next time you get spikes in sales, save some of the revenue and start investing in new sources of income.
Having multiple sources of income, paired with good financial management and manageable costs, is the best way to protect your business financially. Now that you have the best tips and tricks in hand, incorporate them into your business finances.