Four Effective Ways to Improve Your Company’s Financial Performance and Cash Flow

Mismanaged cash flow and uneven financial performance vastly contribute to business failure, especially in the first few years of a company’s operations. To minimize chances of this happening to you, look out for the common pitfalls.

Consistently review your expenses

Keeping an eye on your company’s expenditure is one of the essential steps of cash flow management. Monitor it on a regular basis. You can rely on accounting software and do it all yourself, or hire a professional financial advisor. If you employ an accountant, get their insight on your expense reports. Things to monitor include:

• Payroll (even if you outsource some of your work)
• Profits and losses over time
• Cash flow statements
• Balance sheets (your business’ net equities, assets, and liabilities)
• Depreciation (a breakdown of the company’s assets’ value)
• Accounts receivable and accounts payable (how much money is owed to your company and how much your business owes to someone else)

If you’re the company owner as well as business leader, make a point of keeping your personal finances entirely separate. It can be tempting to tap into one account to help the other, but business transactions should categorically have their own bank account, credit cards, etc.

You will have a much easier time identifying tax write-off opportunities and managing costs. There will also be less of a risk of ruining your company due to personal financial issues, or the other way around.

Get a grip on debt management

Debt can be seen as another form of business expense, but it’s so significant it deserves its own point. For many companies, especially startups, debt is just an unavoidable reality. So face it down to the detail.

First, exactly what kind of debt are you in? Funding for getting your business off the ground? Equipment loans? Mortgage payments for commercial property? Next, what do those loans cost you in a practical sense?

How much are the interest rates? Have they grown? Keep an especially close eye on any variable rate loans. Sometimes it’s stated only in the fine print and you have to check your contracts very thoroughly to spot those conditions.

The point is, review your debts as regularly as all your other expenses. Keep on top of the repayment costs. Be aware when the conditions change so that you can increase or reduce the amount of funds you allocate to debt resolution. It may also be worth it to bring your debts over to a different lender.

Adjust your cash flow

Available cash is your business’ lifeline. As a rule of thumb, you should always have instant access to at least three to six months’ worth of expenses. If your company hits a rough patch, you will be able to pay suppliers and cover any other expenses while you troubleshoot. If everything is going well, you will have readily available funds for any sudden investment opportunities.

However, if you notice a trend of cash flow problems at certain times of year, you may need to make some adjustments. First, secure some additional short-term funds to serve as a safety net. You can achieve that by introducing cost-effective trade finance solutions to your business, which will help you establish a business credit line.

Next, cut down on stagnant inventory in your warehouses or offices which costs you revenue and business space. Then contact your suppliers to negotiate payment dates. Move them to align those outflows with your inflows. Finally, find ways to coax your customers into paying you sooner, such as reducing the payment window on your invoices.

Be careful with large contracts

It can be tempting for a young business to bid on a big new project. Large contracts bring a certain level of prestige. They can nicely boost your portfolio and increase your company’s appeal to future potential customers. However, they can also have a dramatically negative impact if you miss your timing.

Before you bid on a big project, consider the following issues:

• If you get the job, do you have enough staff to finish it in time?
• If you don’t have enough staff on hand, will you pay contractors or hire new people? Do you have the time to screen new employees?
• How reliable are your contractors?
• Can you fund new equipment and materials, if need be?
• Will this big new client cause you to neglect your existing contracts?
• What if the new client drags out your payment?
• What if the new contract is prematurely terminated?

In summary, the best way to improve your company’s cash flow and overall financial performance is to monitor processes. Keep an eye on your costs and expenses. Manage your debts and your cash reserves. Be mindful of large contracts and don’t sacrifice stable business for an attractive gamble.