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When an SME isn’t run well, the wheels start coming off the wagon. Pretty soon, the checks are getting close to having insufficient funds to clear them, sales aren’t collected quickly enough to improve checking account balances, and it begins to seem like chaos.
Running a business like this doesn’t bode well for the long-term, even if it seems sustainable for a month or three. To get out of any bad habits, here are five ways to run a tighter operation.
1. Cashflow Management
While the financial statements of a company typically are created on a quarterly, bi-yearly, and yearly basis, when things aren’t running well, tracking day-to-day activities is best.
A cash flow statement that’s regularly updated and reviewed repeatedly can serve to highlight when there’s an expected bump in the road. When cash gets tight and the payroll is going out near that date, then by looking ahead a little, it’s possible to make course corrections. For instance, these might include reducing other non-essential expenses or planned capital expenditures until later in the year.
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It’s possible to avoid acquiring unnecessary debt or hitting a cash crunch by using improved cash flow management.
2. Keep an Eye on Business Expenses
As mentioned earlier, monitoring the business’ expenses is useful to avoid monetary problems.
When it comes to business expenses filed by executives, this is important too. Some executives can be a little frivolous with the company’s credit card when left unchecked. It’s always best to catch this early to avoid losing money on items of little value to the business.
Looking carefully at all other expected expenses is not a bad idea either. Doing so can help you determine how much money is going out, which will eliminate cashflow problems and/or ensure you have the spare funds for careful expansion.
3. Stop Trying to Do All the Heavy Lifting
Running a business is tough enough without trying to do the financials internally too. As the founder, it’s always difficult to let go of different areas of the business, but it’s necessary to be successful in the strategic aspects.
It’s inevitable that at some point you may want to investigate hiring a small business accountant to help manage your books while you focus on your business. Don’t leave it too late to do so.
4. Chase Sales Ledger Balances Actively
While many of the payments for invoices may come in automatically these days, smaller businesses are often left waiting for the CEO’s approval before they can send a payment electronically or by check.
It pays to establish better working relationships between the bought ledger team and the various companies to speed up the payment cycle. Doing so can reduce the gap between the invoice date and receipt of funds without increasing costs.
5. Weekly Review
Perform a weekly review to see how the business is performing financially compared to the week before.
Don’t leave doing this to a once a month or even more infrequently. This won’t allow for the minor adjustments that will act to redirect the financial outcome over the financial year.
By addressing the reasons behind why the business isn’t running smoothly from a financial perspective, results can be improved immeasurably. The sooner this is done, the better for everyone.
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