With economic prospects and employment opportunities not looking that good in Zimbabwe, many have turned to starting and running their businesses. These businesses come in all shapes and sizes. Sometimes the businesses are the sole source of income and others supplement existing incomes. The goal is of course to improve our finances and to do so the business as a lone standing entity needs to be in a good financial position. This is perhaps an easier task when you understand accounting and business but not so for everyone. Let’s look at practical things you can pursue to improve your business’s financial position.
Get professional advice
If you’re reading this it’s more than likely you feel you can learn more about managing your business finances. One of the best sources of help on this matter is from professionals who look at businesses from a financial perspective. Best because you get help with the specific circumstances your business is in rather some theoretical best-case-scenario that is meant to show how an idea works. Accountants are very good at this but it’s important to make sure you are talking to someone who understands your business and industry.
Improve your recovery
If you’re extending credit to customers another way to improve your business financial position is to monitor your accounts receivable and find ways to improve your recovery. This all sounds very fancy but accounts receivable management is just about making sure that customers who you’ve extended credit pay on time or before if possible. There are small practical actions like assessing creditworthiness before extending credit, keeping a register and cutting off bad customers.
Constantly analyse expenses
You should cultivate a habit of reviewing your business expenses regularly and making sure you are getting the best mileage for your money. Are the expense levels responding to the activities that we expect them to? This is a very slippery slope in an inflationary environment like Zimbabwe. This change on you very quickly! Regularly review your expenses and service providers. Are you getting the best deal available to you? Remember checking doesn’t cost you anything but a little time but could pay off big.
The goal of every business is, or at least should be, to grow. Of course, you want to be better at managing the money in your business but having more of it to manage will do you a lot of good. I like to look at things in simple form and simply put your business grows in two ways. Firstly there is serving more customers and secondly, you can do more business with customers. Which one is better? Both! You want to find more customers and you want to sell more to those and existing customers. So think about your marketing and sales seriously. Consider everything along those lines and make sure your business is set up for growth.
Offer additional payment options
Getting smart with your payment options is another good way to improve the financial position of a business. Ideas such as early payment discounts or lower prices for cash purchases are good examples of this. The best however is offering prepayment. This doesn’t work the same for every business but all businesses work better if work or products are paid for upfront. This is because the customer finances their order and that is a great source of finance for a business. It is not a case of instant success but rather the result of good business relationships and well-crafted policies in a business.
Watch your cashflow
The previous 3 points can all be summed up under one important point which is to watch your business cash flow. Poorly managed cash flow is the reason an otherwise profitable enterprise may need to borrow money to keep things going. Your cash while being different from profit is just as important to keeping your business alive and viable. It’s important to understand cash flow, how it works in your business and identifies opportunities for improvement.
Financing is important
The debate and yes there is a debate about sources of finance will rage on forever in business. While borrowing is a more expensive source of finance because of the mandatory interest payments on debt it may sometimes be the best option. It largely depends on the stage of the business and what you are trying to finance. Borrowing to start a business is most times not a good idea because of the uncertainty involved. Borrowing to finance orders or to expand makes a lot of sense if the numbers are right. Many small business owners may not draw this distinction but you should learn to do so. The method of financing you have access to and choose will have an impact on the financial position of the business.
Running a business is similar to running a marathon in that the goal is to go the distance and not just burn out a quarter of the way through. Many businesses have failed to live long enough to see their success.