The financial health of your business is determined by the difference between the balance of assets and liabilities. Assets are items that have an economic value, such as cash, buildings, stocks, bonds, and even intellectual property. Liabilities are expenses that have not yet been paid off and can include things like accounts payable, government obligations, mortgages, and loans.
To protect the financial health of your business, you will want to factor in all future obligations as liabilities before calculating net worth or amortization. You also want to be aware of how much money you will need for upcoming expansion or to make up for a dip in sales so you can plan ahead by setting aside money from revenues or borrowing funds from outside sources.
For example, if you want to expand operations, you will want to put aside a certain amount of money from the revenues from the previous year. Expand too much and you may be borrowing money on top of what is necessary for the expansion which will only compound your problems. Too little funding and you may not have enough to meet your expansion needs.
Businesses that need funding should consider securing funds through loans or investments. Loans can be secured through banks or venture capitalists but business owners should also consider selling stocks and bonds to secure additional funds for their company. The financing of a business is complicated and it takes an experienced financial advisor to make sure that a company is protected when securing outside resources.
When you think about the financial health of your business, you should also consider any issues that could arise with the credit cycle, which is the series of economic events that cause consumers and businesses to reconsider their spending and borrowing habits. When consumers have enough disposable income, they may be able to buy more expensive items, but they are often trying to remain cost-conscious to pay their bills. This can cause a slowing in sales or a dip in overall financial health if analysts do not predict that sales will be affected and consumers do not expect it.
The credit cycle is further complicated by the fact that many businesses do not have a solid track record when it comes to keeping up on debt repayments and filing tax returns on time.
Tips on how to protect the financial health of your business
Hiring an accountant is a good start to protecting the financial health of your business. However, to make sure that your business is protected, you need to have a well-trained staff to give advice as well. A good example of using accountancy skills to protect a business can be found by looking at Mike Savage, a New Canaan home owner who identified a gap in the market. Mike Savage New Canaan has created an accountancy firm that now supports over 200,000 small businesses.
You can also protect the financial health of your company by making sure that your employees understand the importance of keeping good expense records and ensuring all purchasing paperwork is completed correctly and on time.
Similarly, you can protect the financial health of your company by implementing proper tax strategies. The best way to do this is to consult with the tax professional you hire and not overstate your income and expenses. This will allow you to pay less in taxes so that you can continue to expand or make more profit for yourself.
Many business owners do not take financial planning seriously when they are first starting out but these same business owners are shocked at how much better they became after taking a few finance courses. The advice that professionals provide is invaluable in ensuring that your company grows and can remain profitable.
1) File corporate taxes on time
Make sure you are fully aware of the requirements of your business to file corporate taxes on time. Failure to do so can lead to penalties and other fees. Failure to file taxes on time can also put you at risk for an audit and, in some cases, could lead to a failure to pay fines that are imposed by the government.
2) Ensure that the structure of your business is properly set up
Allocate capital and other resources between different areas of the business so that you can better predict your future financial needs. A good way to do this is by setting financial goals based on a percentage of revenue. For example, if you plan on investing in marketing strategies, make sure that it is funded with either funds from revenue or borrowed capital.
3) Know your legal liabilities
You should seek legal advice on how to protect your business from any legal liabilities that could arise, especially if you hire employees and want to make sure they are covered.
4) Consider selling stocks and bonds
If you are planning on selling stocks and bonds, you need to be aware of how the economy will perform in the next few years. If sales drop and the economy takes a downturn or if tax rates rise, stock prices could fall, causing your company to lose out on a large amount of money.
5) Accurate financial planning
Make sure that you can meet the demands of a growing business by planning, budgeting, and determining how much financing you will need to expand and how much funding you will need to secure before expanding.
6) Be creative about finance sources
Think about securing more funding from other sources besides banks and investors. Selling stocks and bonds will give you more money for your company but can also affect the value of your stock if the public does not believe in the profitability of a company. Consider borrowing from other sources, such as banks and investors.
7) Consider setting up an escrow account for large purchases
If you are thinking about making large purchases, such as an investment property, you might want to consider setting up an escrow account to ensure that these payments are secured and managed by a third party.
8) Understand your cash flow
You should also understand how much funding you will need to meet your cash flow. You can do this by creating an operating statement and then projecting the value of liabilities, assets, and expenses for the next three years. Knowing this will allow you to plan ahead for expansion expenses and accurately determine how much money you will need. A poor cash flow can destroy an otherwise profitable business.
9) Know how taxes impact your cash flow
You also need to be aware of how government tax policies can impact your cash flow if they are not set according to what the government deems as a fair amount.
If you have more revenue than expected, then it may be necessary to increase taxes to cover the unexpected revenue. If you have less revenue than expected then it may be necessary to decrease taxes to cover the unexpected expenses.
10) Manage credit wisely
If you give out credit to consumers or purchase items on credit, make sure that you are managing this properly by making payments on time and ensuring that the interest rate is not higher than what can be offered elsewhere. Failure to make payments on time could cause you to incur penalties and fees and could lead potential partners or investors to think less of your business overall.
11) Understand your industry pricing trends
Keep an eye on industry pricing to determine what you will need to charge for the most profitable items and services. If these prices are too low, then you might lose out on potential revenue, but if they are too high, then you may not be able to sell them.
12) Manage your assets effectively
Be aware of how to manage your assets effectively, especially when it relates to pricing your assets. This way, you can take advantage of current opportunities, such as a low-interest rate. As an owner, you will also want to keep track of the amount of debt that is currently in your business. Too much debt and you could be at risk of not being able to pay the outstanding debts if they were to come due.
13) Consider outsourcing
Consider outsourcing some of your most tedious tasks to ensure that you can focus on the more important tasks that will lead to a healthy and sustainable business. If you have an employee who provides services such as financial management, accounting, marketing, or logistics, then you may want to consider hiring them to do this for you. Outsourcing to a third party may seem like it is easy, but it can be very dangerous, as they may not have the same knowledge and experience that you do. If they are not professionals who are trained to provide adequate support, then they could make drastic mistakes that could cause you to incur unnecessary costs or lose money.
14) Developing Business Advisory Committees
Instead of hiring multiple staff members to assist you, consider creating a business advisory committee so that all of them can help contribute ideas and innovations to better your business.
Business Advisory Committees often consist of three to four people, each with specialized skills, who can help coordinate strategies for the business. These committees can help you to focus on just the most important tasks in your business.
Part of being a successful business owner is knowing how to delegate and manage the employees that are helping you succeed. If you hire ten people, it will be much more difficult to manage each of them effectively. A good way to do this is by creating a small group of employees who have specialized knowledge or have a high level of influence on your company’s performance. These employees are often called manager-mentors and work together alongside other employees who have management-related duties.
Being a business owner can be a very exciting and rewarding experience. The lessons learned by reading this article can become the foundation for you to build your own successful business.
You should consider studying your local community and deciding what their goals are so that you can better understand their needs and focus on those needs.
At the same time, you should also realize that the laws in certain communities may differ from those in other communities. Also, regulations by different states may vary as well. So be sure that you understand the rules and regulations of your local community or state before starting a new business in that area.
