As a small business owner, you are quite often pushed for time and just don’t have the heart to organise your financials. You always mean to get there, but when the end of the month comes around, you still haven’t had the time to get a handle on your finances.
The problem with being time poor in business is that you can end being seriously poor, especially if you don’t sort out your financials and understand where your business is at today. To maximise profits, you must know your current state of affairs, and at the very least know whether you are making a profit or deeply in debt.
So the first step in organising your financials is to look at your cash flow statements, as well as your profit and loss statements and understand where your business stands today. Once you have this information under your belt, you can put together a plan for future growth, but of course, this does rely on you having sufficient cash flow in the bank.
Are you in debt?
If you have looked at the books and realised that you are in debt, you need to take a long hard look at your business. First of all, you need to know if you have short-term or long-term debts, as this will determine how you deal with each type of debt.
Short-term debts are things like payments to your suppliers that are due at the end of the month, as well as commercial credit card debts. With a good business model, all of these will be paid off when they are due, so this short-term debt is simply the normal state of affairs.
The best way to deal with short-term debt is to use short term income to pay for them. So for example, money paid to your business by customers goes into an account to pay both your suppliers at the end of the month and your credit card debt, whilst any remaining income goes towards paying your long-term debts.
Long-term debts can also be a part of doing business, but because they are long-term debts they can cost you a significant amount of money in interest. This type of debt can include loans for equipment and vehicles, as well as leases for buildings and hire purchase agreements.
These longer-term debts should be paid after you have sorted out the short-term debts, and if you don’t have sufficient funds to pay these long-term debts, then your business model needs some serious tweaking. At this point, if you have a number of long-term loans that you cannot pay consistently, it might be an idea to consolidate your debts and start afresh.
Workable strategies to reduce your debts
Many business owners have no idea where all of the money goes, simply recognising that they are not making a profit and are heavily in debt. Getting your financials in order and understanding how much money you do and don’t have is an important step in moving forward and starting to turn a profit in your business.
This is the point where you need to look at your expenses, because, without a doubt, you can always find ways to make savings. For example, anything from turning off the lights at the end of the day to cutting down on travel costs or leasing more fuel efficient vehicles can make a big difference to your business expenses.
Some costs you can’t reduce, such as leases and hire purchase agreements, but as far as non-essential costs and even suppliers are concerned, there is always room for improvement. As you can appreciate, increasing your prices is not always the best solution to fixing your financial problems, as this can push your customers away, making the entire situation even worse.
If your business is in financial trouble with too many debts, why not talk to your financial adviser who can help work out a reasonable strategy to help turn your business around? However, if consolidating your debts is a good financial move for your business, call National Finance Solutions on 1300 13 50 50 or get an online quote today.
