The start of the new financial year is a perfect time to step back and dedicate a day to working on your business. Here are a few steps to get you started.
As a small business owner who is actively engaged in working in their business and not on it, it can be tricky to see the danger signs in time. Being aware of the bigger picture of where the business stands and the way it is heading is an important ingredient in making timely moves that will ensure you have a financially sound business that does not stray into the red.
As we are now in the new financial year, I thought I would put together some steps you can take to give your business a financial health check.
Assess your financial strength
Mounting debt can be a serious problem if not attended to quickly, especially when you consider that the wrong kind of funding is a common reason why small businesses fail. It is important to see your business for what it is, rather than viewing it from the perspective of how you would like it to be. You have to sit back, assess your outstanding debtors and creditors, and seek financial advice when you are unsure.
Look for warning signs
There is no shortage of warning signs that a business is in distress – over-leveraged finances, declining sales and turnover, and unpaid suppliers are some of the common signs of impending business failure.
Ask yourself the right questions such as:
- Is it getting harder to make debt repayments?
- Is maintaining cash flow to meet expenses a struggle?
- Are margins declining, eating into profitability amidst increasing competition?
- Is the pressure to pay outstanding invoices from suppliers mounting?
Working with your financial adviser or accountant, or seeking professional advice, may be the key to understanding the flashing red lights.
Assess and prioritise your debt
Having multiple creditors awaiting repayments can be daunting when you try to manage your cash flow. One way you could relieve some stress is by assessing who your creditors are, and by prioritising your debt.
You may want to identify and list your creditors, assess how much you owe and to whom, and prioritise the ones who need to be paid first as well as the ones you could afford to pay. Negotiate with creditors to agree upon set timeframes, and arrange for payment plans where possible. The first place to start off with prioritising your debt may be to budget your income and expenses.
Review your marketing expenses
From my years of providing marketing and consulting services for small businesses (often soloists) one thing I regularly see is hundreds or even thousands of dollars a month going to companies like Yellow Pages because they think it ‘might’ be helping their business. I can assure you this is almost always dead money – if something is working you will know about it.
In this day and age if you are paying someone for marketing and they can not show a clear ROI on your spend you should cut them right away. Always remember marketing is an investment, so you should expect to see return on your money – if it is only making back what you spent or providing a small amount of return, I do not see this as something worth investing in.
Collect your dues
It can be challenging to have your dues paid when your business is struggling. There could be many reasons why your customers and clients have not paid, including their own operational and cash flow issues.
Have a professional conversation with them to check the status of your payments, making sure you are on the same page. Reviewing the terms of your contract, following up with other client representatives, understanding dispute resolution mechanisms in your industry and taking legal action may be further steps that you could consider, depending on what the initial response to your conversation is.
In times of increasing competition, changing business environments and economic uncertainty, maintaining business operations and achieving strategic goals can be a tough task. It’s important to make sure that you always take time to step back from working, and take a critical look at your business to make sure you are on the right track.