4 Resolutions for Getting Your Small Business Finances Back on Track
Whether you’ve overestimated income or underestimated expenses, the red lights are flashing, and horns are sounding. It’s a rotten place to be in, but it’s not necessarily the end of your business. Trust me, I’ve been there a few times.
The first step is to act. Do something about it – something more than you have done in the past. Don’t give in to defeat without another good push toward progress. Resolve to get your business finances back in order and stick to your plan. Let’s look at four ways to turn a small business around financially.
1. Recognize Your Priorities
Take a hard look at your business model and processes and prioritize them. Your top priorities are whatever your business requires to operate and to meet customer needs; focus on them while considering ways to increase revenues. Your billing and accounting process is a good candidate. A more seamless billing process that includes easy-to-make payments should bring money in the door faster.
To drive revenues quickly, you might be tempted to expand your customer base—more customers means more sales, right? Consider that it costs more money to attract new customers than to keep existing ones. A more lucrative move might be to build stronger relationships with your current customers and upsell them to different products or services.
Also be leary of offering discounts or sales on products and services. Discounting is fine when a product is being introduced, when you use it as a marketing tool over the holidays and when something is being discontinued. But too much discounting, especially for services, devalues your work. Maintain your prices and fees; don’t sell yourself short.
After reviewing your business model and prioritizing processes, pore through your budget to determine which expenses are critical to the success of your business and those that are lower priority, considering the short-term and long-term consequences of moving each item.
2. Re-budget the Business
Plan to cut expenses in the short term. You might have already done this, but do it again, with a sledgehammer and a scalpel.
Start with low-priority expenses determined in step 1, then move up the list and run the numbers after each cut is made. Your goal may be to simply cut the fat, or to go as lean as possible to stay afloat. This step can be gut wrenching; it may involve letting some employees go (and filling in with freelancers or temps) or moving to a space with lower rent. But you can’t keep doing things the way you have been—it’s not working.
3. Collect on Debts
Set up a system for monitoring unpaid customer bills and collecting on them. Some business owners loathe asking for money, but remember, it’s your money. You earned it and you need it. You entered into transactions in good faith, and you held up your end of the deal. Your customers should too.
Remember, the longer a bill is overdue, the less likely it will be paid. Make it a point, going forward, to close the loop quickly on this important part of business. For example, if you offer net terms to customers, follow up within five days after payment is due but not received. If a customer can’t pay a bill in full, ask when you can realistically expect payment and whether they can make partial payments. Be polite and courteous, but firm.
4. Don’t Allocate All of Your Financial Resources
Don’t take on new financial obligations until you are sure you can support them. You might be thinking it takes money to make money, and that’s true in many cases. But when you’re staring at a flat or failing business, be highly cautious of taking on more debt. Instead, brainstorm about a new product or service, gaining additional customers or how to make your products or services essential.
Once you’re back on a better financial footing, maintain a financial pad—a cash reserve—with a goal amount that you don’t touch unless absolutely necessary. You build the pad exactly the same way you do a personal savings account or retirement plan. Put a little money aside every week and watch it grow. Be sure to earmark expenses to add back to the budget when cash flow has increased and is stable and doesn’t require dipping into the pad.
Being in a constant state of dread over your finances and worried about failure is self-defeating. Think about what you would tell a family member, friend or business associate who is struggling, and put that advice into action. Visualize your business, every day, the way you want it to be. Changing your outlook, amazingly, can help you see transformational opportunities you might otherwise overlook.
Looking for more advice on how to manage your small business? Here’s what you need to know.