How to become a financially secure business
Achieving financial stability is not always simple, but through the implementation of specific steps and proper financial planning, small business owners will be able to achieve this goal.
Businesses exist to make money – to generate revenue that exceeds their operating costs and to earn enough to ensure that their directors, shareholders and employees are compensated for their work.
But earning enough does not equate to financial security. A financially secure business has a strong sales pipeline that brings in revenue, a highly efficient workforce that cuts wastage, a robust cash reserve that can protect your business from unforeseen circumstances, and ideally, a growth path that is realistic and exciting. When your business achieves that, it achieves success.
So what should you do to achieve success? At Berley, our small business growth specialists have been fortunate to work with SMEs across London and help them to secure business success. In this article, we aim to share six tips that can propel your business forward, giving it a chance to grow from strength to strength and becoming financially successful.
1. Focus on profitability
Many small business owners we know focus on achieving sales growth – this is fantastic, but without knowing how to control costs and increase profits, turnover figures mean very little as they do not translate to profitability.
A typical error made by many business owners when they set sales prices is that they include the direct costs of the product or service, but not overheads such as rents and business rates. For instance, if it takes your programmer a day to create a complex script for a customer, you take the hours spent and add a mark-up to produce a fee you will charge the customer. Chances are, the mark-up does not include rental cost, business rates, machine use, electricity use, the review time by the supervisor, the marketing hours spent by another colleague, plus the sales effort.
Therefore, it is important to analyse your costs more closely. One effective way to do that is to produce a forecast profit and loss account which allows you to identify all potential costs and use them to set your selling prices.
If you would like to know more about costs, our article “5 ways to manage rising business costs” will make a good read. Alternatively, you can also contact one of our chartered accountants on 020 7636 9094.
2. Good cash flow management
Good cash flow management is key to your business success because it means your business has working capital to meet its day-to-day financial obligations. Cash flow, referring to the amount of money going in and out of your business, is something that you can plan and control. For example, if you know that you have a big tax bill to pay in January, but you are not likely to receive money from your clients due to the festive period in December, then you can choose to incentivise your clients to pay you in advance, such as arranging a business loan, or preparing to impose cuts. These methods will swiftly see you through the period.
Ultimately, the goal is about having a strong cash reserve so your business can withstand any financial stress your business may encounter.
Check out our article “Five ways to improve your cash flow” if you would like to improve your day-to-day cash flow.
3. Make use of management accounts
Monthly management accounts, prepared by your accountants, give an insight into the financial health of your company. The report usually consists of an executive summary, a cash flow statement, a profit and loss report, as well as a balance sheet.
Receiving management accounts is one thing, but understanding them and using them to reduce wastage, modify your budget, improve profitability and plan for growth is another thing altogether. At Berley, our small business accountants are ready to assist you with any questions you may have pertaining to your management accounts.
4. Examine your business model
No matter what industry you are in, the market evolves, and you must be ready to adapt your business to these changing circumstances and needs. The road to long-term financial stability requires your business model to be flexible enough to respond to market demands while identifying growth opportunities.
For example, you run a staffing agency and you can see that potential clients now look online to find freelancers as and when they need them. At the same time, freelancers can also advertise themselves on several online platforms directly to companies who want to use them, bypassing an agency like yours. In this scenario, it is fair to say that you have to adapt quickly so that you are well-positioned for success in an ever-changing landscape.
5. Have several goals
The path to financial security has no overnight shortcuts but a series of decisions made to meet a series of goals such as revenue goals, customer service goals, social responsibility goals, outreach goals and employee appreciation goals, to name but a few.
These goals can be short or long-term. For example, your short-term employee appreciation goal is to reinforce desired behaviours by implementing an “Employee of the month” programme, while your long-term goal is to increase positive employee commitment and loyalty.
6. Talk to a business mentor
At Berley, we like to think that entrepreneurs are superheroes who shoulder heavy responsibilities, but even superheroes realise that they have limitations and they need support from other people. Having a mentor whom you can trust to provide advice and guidance is key. Ideally, the person can also use their clout to open doors to various opportunities for you.
Berley is here to help you obtain financial security
At Berley, we are entrepreneurs ourselves, hence we think and act differently to other accountants in London. For example, one of our goals is to help our clients grow, because we believe that if you grow, we will grow too. To facilitate growth, we strive to set small business owners free of their financial affairs by providing solid accounting and business advice along the way.
So talk to us today – be it business advice, tax services, online accounting or bookkeeping, our expert team of small business accountants and business growth specialists can help you implement a solid business plan, and advice you on your journey to financial security and beyond.
To get the ball rolling, just give us a call on 020 7636 9094 or get in touch using our online form.
This article was first published in 2017 and was updated on 28/08/2019.
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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.