Welcome to the Center’s May post! Thank you for keeping up with our blog updates. This month we’ll focus on financial management.
Does managing your business’s finances give you headaches? Well, you’re not alone. Many small businesses struggle over this issue as well.
What are some common challenges of financial management? And what possible solutions can address these challenges?
Lack of Capital for Daily Operations
This is perhaps the most common financial challenge for small businesses. It is normally quite difficult for small businesses to get loans approved with favorable interest rates from banks. So what other ways are there to maximize your reserves? Some suggestions:
- streamline payment collection processes to settle payments more quickly
- review payment disbursement schedules to optimize terms with vendors.
Knowing Capital Structure
Every business has its own unique capital structure – consisting of equity, debt, internally generated funds and trade credits.
What does your business’s capital structure look like? Is it 20% equity and 80% debt? Or 40% equity and 60% debt? What are the sources of your equity and debts?
Having a clear picture of your business’s capital structure is very important. As we all know, capital is the foundation of your business and a well-balanced capital structure carries you a long way.
Cash Flow Management
Cash flow is “Money in, money out” and impacts your business operations in every way.
Everyone knows that they need to keep track and stay on top of their cash flow. The process of bookkeeping can be difficult and tedious, but the importance of accounting cannot be underestimated. A systematic procedure to process, organize and review documentation can save you bigger troubles in the long run.
So how can we improve accuracy and productivity? If you don’t have the budget to hire another professional, there are other paid apps such as FreeAgent, Enloop and Pulse which help to monitor the lifeblood of your business.
Increasing capital is essential, especially when your business is growing rapidly. Securing loans can be difficult, but other funding options are also available:
- friends and family
- crowd funding
- business loans
- venture capital
- angel money, etc.
Remember to keep in mind that not every option is suitable for your business. Have a clear picture of your business’s financial situation and assess risk tolerance for each funding method, considering the pros and cons of each option. Choose wisely!
Balancing Equity and Debt
Have you heard of the term “financial leverage”? When applying for new loans, your business is basically like a lever. A certain amount of debt incurred by securing a loan can amplify your business’s “lifting power.” But past a certain point, the amount of debt becomes too much to sustain and your business/lever falls out of balance, potentially leading toward bankruptcy.
Before securing a loan, consider the risks carefully, and only take on more debt if you are confident in your business’s ability to pay it back.
Although financial management can be nerve-wracking, remember you are not alone! We hope you’ll find some of these tips useful.
Having a clear picture of your business’s financial situation will allow you to plan your business strategies accordingly toward growth and success.
Your business is worth the efforts placed into proper financial management!
Stay tuned for more on Financial Management!