Effective financial management is vital for a business’ survival and growth strategy. It involves planning, organising, controlling and monitoring your financial resources in order to achieve your business objectives.
Good financial management will help your business to make effective use of resources, fulfil commitments to your stakeholders, gain competitive advantage and prepare for long-term financial stability. You might feel that your finances are complicated and confusing but the following tips should help you to keep control of them:
- Increase your prices
Yes, I know it can be difficult. But quite often, business owners are more worried than customers about pricing strategy. There is that concern of what the customer will think about the increase in price and will my sales figures be poorly affected or will my customers go to a competitor. If you are delivering a good service and have good products, customers are usually not that sensitive to a small price increase.
You may lose the odd customer, but if you increase prices, profits and cashflow are likely to increase and outweigh any volume loss.
- Analyse your profit margins
Your overall gross profit margin could be deceiving. Find out the gross profit margin on each of your products and services, and analyse your gross margins over different business divisions, product categories, suppliers or customer categories relevant to your business.
This way you can identify both low margin or loss-making items and profitable activities or products. Then you can stop selling low margin lines or increase the prices of these items accordingly and focus on selling more of the ones that actually make you money.
- Lower your expenses
Lowering your expenses won’t help you collect money that’s owed to you, but it will ensure profits are maximised and you’re better able to weather periods of reduced cash flow. Keeping costs low, regularly reviewed and challenging whether you need to incur a cost is good business, and will place you in the best position to pivot, embrace opportunities, or make investments that can grow and improve your business.
- Map out plans for cash coming in
In an ideal scenario, a company would see the cash it brings in building nicely and waiting to be spent on new projects, equipment, ideas and bonuses. In reality, most small businesses will need to reallocate funds they bring into creditors, service providers, employees etc. To streamline and to optimise the way these processes work, plan as closely as possible, forecasting at least 13 weeks ahead, where your cash will be used when it is received. As with so much else in the context of running and building a business, leaving as little to chance as possible is eminently preferable when it comes to managing money.
- Keep up-to-date accounting records
If your accounts are not kept up-to-date, you could risk losing money by failing to keep up with late customer payments, missing discounts or not realising when you have to pay your suppliers. Using a good record keeping system with real time links to your bank, (likely to be cloud based), will help you to track expenses, debts and creditors, give you current financial data and save time and accountancy costs.
- Speed up your invoicing process & credit management
Few small businesses can afford to see their invoices going unpaid for lengthy periods of time. The best and most reliable way of ensuring that you receive payments from clients in a shorter time-frame is by speeding up the process at your end.
By systematically sending out invoices at the earliest opportunity and deploying good credit management practices, you will very likely see significant benefits in terms of how soon your invoices are paid in full. In fact, there is often a disproportionate tendency for companies to pay their invoices quickly when they are received shortly after the relevant work has been completed.
- Claim what you are entitled to
Many businesses miss out claiming what is due to them including:
- £3000 employment allowance to reduce your employer’s national insurance costs.
- R&D Tax Credits – a valuable relief which helps you reduce your company tax bill or even get a refund – many companies qualify without realising through enhancing processes, technology, researching new ideas.
- When hiring apprentices there are often training grants and national insurance reductions.
- Grants – there are often grants available for SMEs for job creation and capital equipment purchase, often accessed through a local enterprise partnership or industry specific body e.g. Welcome Trust, NEA.
Struggling for ways to improve your company’s finances and need support in deploying your strategic plan? EFM Ireland is here to help you. Speak to one of our EFM Experts today for more information around our financial management services. Click here or call our central team on 01442 8176 to get in touch today.