The financial health of a small business is more than just about making sales. There are other strong aspects and challenges of a successful business like proper management of cash flow and keeping your business on solid financial footing. Unluckily, almost 50% of all small businesses fail within their first few years of operations because they were unable to manage their financial health.

As a business owner, you manage many roles just to keep your business growing. And when it comes to managing your business’s finances, it’s time to monitor and manage your financial health. It involves preserving a cushion in your bank balance, keeping proper accounts, staying acquainted with your payables and receivables. All these activities help in the sound management of your business’s financial health.

Sound management of financial health doesn’t mean a business owner has to be an accountant, instead the success starts with understanding a few key metrics that constitutes the overall financial health of your small business. Keeping a handle on these metrics will help you understand your business’s financial health and if you are unable to understand them, speak to your accountant or other trusted financial adviser.

  1. Business Revenue

Revenue is the chief metric that needs your full attention because a business without it just won’t last long. You need to monitor the daily income along with keeping track of it on weekly, monthly, quarterly, and annually. In order to prosper in the long term, a business must first be able to survive in the short term, so keeping track of your revenue should be on the top of your list.

  1. Business Expenses

The second important metric is the cost of running and managing your small business. It involves the cost of goods sold as well as the overhead costs related to your business. These costs include utility bills, wage, subscriptions, insurances, equipment and supplies, rent, lease, electricity etc. Having control of your business expenses is vital to effective management of your finances.

  1. Business Cash Flow

There’s an old saying that “cash is king” and this means cash flow is the blood that keeps the heart of the your business kingdom pumping. Cash flow is the third most critical component of success for your small business. Without it, profits are meaningless and achieving a positive cash flow does not come by chance. You have to work at it. For this, you need to undertake cash flow analysis to ensure you have enough cash every month to cover your obligations in the coming month.

  1. Accounts Payable 

Accounts payable are your company’s unpaid bills and can have a big impact on the profitability. Staying on top of your Accounts Payable is important since they provide an opportunity to benefit from the quick payment terms since many suppliers offer discount benefits to customers who pay their invoices quickly. Following a set of best practices in accounts payable management can have quite a positive impact on profitability.

  1. Accounts Receivable

Being an essential element of a business’s cash flow, accounts receivables also affect several areas of accounting including accounts payable, financial statements, budgeting, and collections. Understanding the impact can aid in the direction of making decisions on your credit and collections policies. The habit of collecting late invoices from customers will become more challenging and difficult as the time passes. Therefore, just like accounts payable, staying on top of your accounts receivables is important for the profitability of your small business.

Use Accountant to Improve your Financial Health

Leverage your accountant perspective and insights can help improve your business financial health. The accountant reviews your business from a little different perspective, and leveraging it can help increase your profit potential. Consider regular meetings with your accountant to review your financial report and look for areas that need improvements or tweaking and use that information to leverage opportunities to save money or increase profit potential. This will help you build a successful business, but you should also be prepared to pay for the advice.

You don’t have to be an accountant to run a successful business, but most successful entrepreneurs understands their financial data and they use that information to make informed business decisions.

Automate Accounting Process

Automating your accounting processes will not help make accounting and bookkeeping much simpler, but also enable your accountant to access your financial data remotely and easier to file tax returns and year-end financial statements. It’s best to discuss with your accountant which program they prefer so you know it will successfully integrate with the system they use.

5 Key Questions to Check Your Financial Health

Deploy best practices by creating a routine checking of your business financial health by evaluating metrics like revenue, cash flow, and debt obligations.

Before you start evaluating your business financial health, there are few key questions you should ask to determine whether your business is in sound financial health.

  1. Is your business steadily generating net profit?
  2. Is your business meeting financial obligations?
  3. Can your business ensure unanticipated dips and change?
  4. How does your small business measure success?
  5. Could your small business fund growth using debt financing and cash from earnings?

10 Financial Health Strategies for Business Owners

Here are ten financial health strategies you can deploy to improve your small business finances.

  • Know your numbers.
  • Pay your bills on time.
  • Fulfill your financial obligations properly.
  • Keep separate accounts for business and personal.
  • Track expenses in real-time.
  • Improve your business credit.
  • Lower your cost of operations.
  • Support staff by focusing on their well-being.
  • Create a business emergency fund.
  • Last but not the least; take care of yourself.

Is Your Small Business in Good Financial Health?

Running a managing a successful business isn’t really rocketing science, it only requires determination and regimen as an entrepreneur to figure out what’s happening in your small business financials. You might need some time and effort to learn a few additional skills, but these tips will surely a great start to have a better understanding of how your business is doing financially.

Small Business Financing News │ Merchant Advisors | blog
A Guide on How to Improve your Small Business Financial Health
A Guide on How to Improve your Small Business Financial Health
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Whether you are a startup or an established small business, here is a comprehensive guide for you to improve your small business financial health.
Merchant Advisors
Merchant Advisors