Achieving a financially robust business is something that is easier said than done. According to the Washington Post, about half of all businesses close within four years. That means that it’s vital that businesses start thinking about their financial robustness. Once the money runs out, that’s it: it’s game over.
Having good habits from the outset, therefore, is important. Without all the necessary due diligence, your business will soon fail. Here are some quick tips to make your business more financially robust.
Make Sure The Price Is Right
All of the money your business gets comes from your customers. And so the price you charge for your products is key to your success. Often companies will go in low, thinking that this is the way to attract customers. But almost all of the advice from experts is that this is not a good strategy. It sends out the wrong message, and it undermines your bottom line.
The price that you charge needs to cover all of your business expenses. That means it has to be enough to cover the cost of wages, rent and utility bills. If you pay for outside marketing, it has to be able to cover this expense too. Trust that there is demand out there for your product at the price at which you set.
Expect Shortfalls And Plan Ahead
Given how many businesses don’t succeed, it would be naive to think that shortfalls won’t occur. Undoubtedly, you’ll experience pauses in demand. And these will wreak havoc on your bottom line. If you own a seasonal business, for example, you will learn to expect shortfalls in your financial calendar. So you might want to use this time to schedule all the other jobs you don’t have a chance to do the rest of the year. This could include cleaning your facilities, doing your tax returns or focusing on new product lines.
You’ll also experience losses as a consequence of your day to day business. Time and time again, computer equipment will fail, and people will go off sick. You may also be the victim of theft on occasion. For these reasons, it’s a good idea to have a backup plan for how you’re going to weather financial storms. Nothing is worse than facing an economic catastrophe and not being able to do anything about it.
Litigation threatens the financial robustness of all businesses. Companies can be sued for all sorts of reasons. But the main culprits are selling faulty products, employee injuries, and customer injuries.
Most companies don’t monitor loss drivers using claims management software. But doing so is essential if you are going to reduce the losses your business experiences. Litigation can often cost you a lot of money. And so it’s worth investigating the areas in which you are weakest and asking yourself; what is going wrong? Once you know the answer to that question, you’ll be in a far stronger position to protect your financial integrity.
Know Your Tax Code
Right now, too many small businesses don’t understand the tax code. This hurts them in two ways. Firstly, many companies end up underpaying on certain elements of tax. This then lands them with massive fines that can set them back financially.
But by far the biggest problem is companies paying too much in tax. Companies often fail to recognize when they’re allowed to make deductions for particular expenditures. And as a result, they end up paying the full rate of tax on far too many dollars.
The best way to solve this problem is to find a financial professional who understands how to save money on taxes. Remember, there’s a big difference between a financial adviser and an accountant. Both have their strengths and weaknesses. And both are potentially able to help you reduce your tax liability.
It also helps if small businesses carefully track all their expenses and maintain clear accounts. These days, this is super simple to do, with accounting software. But it’s surprising just how many businesses don’t bother. This loses them both time and money when it comes to filing.
Get A Financial Analysis
It might sound like a chore, but having a financial analysis done for your company is crucial for its long-term health. Most of the time, business owners don’t understand the financial position of their enterprises. Their accounts are all over the place, and so it’s often hard to tell whether the company is in the black or not. Most owners only find out that their businesses are in trouble when it comes to file their tax returns. And, by this stage, it’s often too late.
A financial analysis will help your company by providing information to both you and your investors. You’ll be able to see clearly where your business is succeeding and where it is failing. And your investors will be able to see what direction in which the business should go. Financial reports often contain detailed information about the types of risks and markets with which your firm is engaged. And it often provides an executive rundown of your company’s strengths and weaknesses. Once you know this, you can adjust your strategy to make your business more robust.
Be Critical Of Your Business Costs
Many small business owners see their business costs as par for the course. But even though they are part and parcel of running a business, they don’t need to cost an arm and a leg. Here’s the thing: many small businesses don’t critique their own costs. They stick with the suppliers that they have always had, and they don’t look for cheaper alternatives. And, as a result, they lose money year after year.
Often small businesses feel as if they owe suppliers. But they forget that, as businesses, they are customers too. And if they see a better alternative, they’re free to go elsewhere. If you feel that your supplier isn’t giving you a good deal, point it out. Suppliers will often react favorably. They want to keep you happy just as much as the next company. Simply say that another provider is offering the same level of service at a lower cost and see what they say.