Managing financial a small or medium-sized enterprise (SME) is no small feat. A single mistake can easily put you in hot water, so it's important to always keep an eye on your numbers and make sure you're making smart decisions with your money. Using financial tips to help manage your business's money is always a good idea.
Sometimes, there are unforeseen circumstances that can put a strain on your finances, such as an economic downturn or unexpected costs. You may need to take out an SME lending opportunity to tide you over during tough times.
But if you're proactive about managing your finances, you can weather any storm. Here are a few financial tips to ensure your business is on solid footing:
Your cash flow is the lifeline of your business, so it's crucial to keep tabs on it at all times. After all, 82% of businesses fail because of poor cash management. You can stay on top of your cash flow by tracking your receivables and payables, as well as your inventory levels.
Make sure you have a system in place to track your inflows and outflows of cash. This could be as simple as using a spreadsheet or accounting software like FreshBooks.
You should also review your cash flow regularly, at least monthly or quarterly. This will help you spot any potential issues early on so you can take corrective action.
A budget is a roadmap for your business finances. That's why it's important to create a budget and stick to it. Otherwise, you risk overspending and putting your business in a precarious financial position.
Start by looking at your past expenses and income to get an idea of where your money is currently going. Then, create a budget for the upcoming year that considers your revenue goals and key expenditures.
Once you have a budget in place, stick to it as closely as possible. It's helpful to review your budget regularly to ensure you're on track.
SMEs need to focus on and nurture their credit standing for two reasons. First, a strong credit score makes it more likely that you'll be approved for loans and lines of credit when you need them.
Second, good credit can help you secure lower interest rates on borrowing, which can save your business money in the long run. There are a few things you can do to improve your credit score, such as paying your bills on time, maintaining a low debt-to-income ratio, and diversifying your credit mix.
Life is full of surprises, and many of them can be costly. It's important for all businesses—not just SMEs—to have an emergency fund to cover unexpected expenses. This money can come in handy if you need to make unplanned repairs or replacements, or if you experience a drop in sales.
Ideally, aim to have three to six months' worth of operating expenses saved up in your emergency fund. This may seem like a lot, but it will give you a cushion to fall back on if something goes wrong.
The relationships you have with your suppliers, customers, and other business partners can have a big impact on your bottom line. That's why it pays to nurture these relationships and build strong bonds with the people you do business with.
Good supplier relations can lead to favorable payment terms, such as extended payment deadlines or discounts for early payment. And strong customer relations can cause repeat business and positive word-of-mouth marketing.
Having connections with other businesses in your industry can give you a competitive edge. These relationships can provide you with insights into new trends, products, and technologies.
The cost of goods sold (COGS) is a key metric for any business. COGS represents the direct costs associated with producing your goods or services. This includes the cost of materials, labor, and overhead.
Always evaluate your vendor contracts to ensure you're getting the best possible deal on supplies and raw materials. In addition, regularly review your labor costs to make sure you're not overspending on wages. Finally, streamline your production process to reduce overhead costs.
SME financial management is a complicated but necessary process to keep your business running smoothly. While there are many facets to consider, the 6 financial tips listed above are a significant starting point for streamlining your SME's finances.