top of page

How to Ensure Your Business is Financially Healthy

Running a financially healthy business is essential for success and growth. When your business is financially fit, you have the resources and flexibility to seize new opportunities, invest in improvements, and weather any storms. Here are some tips to keep your business in good financial shape.

Regularly Review and Manage Cash Flow

Cash flow is the lifeblood of any business. Review your cash flow statement at least monthly to understand money coming in and going out. Watch for dips that could leave you short on cash to cover costs. If you see potential shortfalls on the horizon, you may need to temporarily cut spending, invoice earlier, or find ways to access cash, like business financing.

Set up processes to manage cash flow proactively. Invoice promptly after delivering products or services. Pay bills on time but take advantage of any early payment discounts.

Consider negotiating longer payment terms with suppliers to ease pressure on cash reserves. Use technology like accounting software to forecast, track, and collect payments.

Compare Business Expenses to Cut Costs

Carefully review operating expenses to identify areas where you could be overspending. Look for subscriptions, products, or services you rarely use and may be able to cancel or downgrade. Compare business water suppliers through The Business Water Shop as well asenergy plans, equipment rental costs, and other major expenses. Leverage competition between business energy and water to get better rates.

When comparing new vendors and contracts, calculate the potential savings against any fees to switch. Only make changes that reduce business expenses without impacting operations. Set calendar reminders to reassess prices and plans annually.

Build an Emergency Reserve Fund

Having cash reserves is vital so your business can handle unexpected costs. Aim to build savings equal to 3-6 months of operating expenses. More reserves provide a bigger buffer for revenue slowdowns or unplanned costs like equipment repairs or new regulations.

Add a monthly or quarterly transfer to this emergency fund. Even small, consistent contributions help build reserves over time. Limit withdrawals only to true financial emergencies, not simply monthly budget shortfalls. Review the balance a few times a year and adjust contributions if needed to reach your savings target.

Diversify Your Customer Base

Relying too much on just a few customers or clients creates risk if you lose their business. Diversifying your customer base makes your business less vulnerable to major financial impacts if one large client leaves.

Analyse what percentage of sales comes from your single largest customers. Set a goal to limit dependence on your top customers to 30% or less of revenue. Brainstorm ways to add new customer segments with separate budgets and purchasing needs. This dilution reduces risk and spreads revenues across more payers.

Optimise Accounts Receivable Management

Don't let unpaid customer invoices pile up, starving your business of working capital. Implement strong accounts receivable processes to collect what you are owed faster. Track invoices due and send friendly payment reminders a few days before the due date. Make it easy for customers to pay you through multiple options like cards, ACH transfers, or e-payments.

Pay attention to slow payers who routinely go past due. Reach out to understand the reasons for delays and discuss how you can facilitate faster payment.

Consider offering small discounts for customers who pay within 10 or 15 days to incentivise faster payment. Pursue collections on severely late accounts to recover amounts owed.

Build Projections and Benchmarks

Forecasting helps guide smarter financial decisions by indicating how plans and changes will impact your bottom line. Build 12-24 month cash flow, profit and loss, and balance sheet projections. Update projections monthly as actual results come in. Establish financial ratios like gross margin, current ratio, and return on equity. Track them over time and compare them to industry benchmarks.

Projections and metrics show the potential effects of growth initiatives, investments, new hires, and other spending decisions. They also provide an early warning if your business veers into risky territory. Adjust the plans if the projections show inadequate income, thin margins, high debt levels, or other indicators of financial trouble.

Work with a Qualified Accountant

Partner with an accountant experienced with small business needs. Schedule a free consultation to assess their expertise and fit. An accountant acts as an advisor to improve your systems and compliance. They can spot problems in profitability, taxes, and cash flow early when they are easier to correct.

Meet with your accountant at least quarterly to review plans and numbers. Ask them to assess vulnerabilities or suggest improvements. Leverage their perspective as an independent expert on best financial practices. A strong accountant relationship helps you continuously refine systems and strategy.

Keeping your business financially fit requires discipline in regularly monitoring your numbers and making proactive decisions. Implementing these steps helps safeguard your company's financial health and ensures you have the resources to manage costs, pursue new opportunities, and withstand any industry challenges. A financially strong business is positioned for sustainability and prosperity.


bottom of page