Running a business’s finances is a complex undertaking. Even the best companies struggle with it due to unexpected expenses and dynamic changes in cash flow.
However, some brands go off the rails more than others. So how can you avoid their fate?
That’s what we discussed in this post. It looks at what usually goes wrong and some of the practical steps you can take to restore order.
Uncontrolled Expenses
Uncontrolled expenses are a significant issue at many companies. A lot of firms waste cash on things they don’t need, which mostly boil down to staff and executive luxuries.
The trick here is to conduct regular expense audits. Nothing should seep through the cracks.
You also want an audit chief who really cares about the mission. Their job should be to reduce spending as much as possible without putting any aspect of the business at risk.
If they can’t do that, stick to budgets. These encourage managers to stick with pre-approved spending plans and spread them across the month.
Debt Overload
Debt overload is another reason business finances sometimes go off the rails. Companies often take on massive borrowing to finance their initial push but later regret it.
Usually, debt overload results in financial failure and the company goes bust. However, it can also lead to sluggish long-term growth and performance, undermining the realization of what could otherwise be an exceptional brand.
To restore order, you should review your debt-to-equity ratio constantly. It should be below 1 most of the time, especially as your company matures.
If you need to sell part of the business to get rid of it or refinance, then do so. Don’t allow debt to drag you down.
If you can find a lender willing to lend at a lower rate or accept equity, that can also help.
Lack Of Cash Flow
Lack of cash flow is also an issue. Businesses that fail to track their cash-on-hand money situation often get into crunches where they can’t pay suppliers or staff.
To prevent this, implement cash flow management policies. Work with an accountant who can predict what your cash flow will be like going forward and the steps you should take to preserve it.
Also, set up emergency cash funds for rainy days. Sometimes, large clients simply won’t pay you (or will do so late in the day), causing you to dip into savings. Always ensure you have cash on hand to prevent this.
Finally, use a flexible payment gateway that allows you to accept payments via multiple channels. Make sure that customers can send you money when you need it, especially after the completion of an expensive project.
Inaccurate Record Keeping
Finally, inaccurate record keeping can sink your business ship. Getting this wrong makes it hard to know where expenses are going.
To restore order and prevent this from happening, use accounting software or hire professionals. Always reconcile your accounts to ensure that everything makes sense and that there are no missing payments anywhere. If you can automate these practices, that’s even better.
**Image source: Pexels - CC0 License (1)
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