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How Financially Fit Is Your Business?

Key Takeaways

  • Review each stage of your financial operating cycle to find ways to become more efficient and profitable.
  • Consider using banking tools that can help you save time and optimize your cash management.
  • Choosing the right financing vehicles to fund your purchases can be critical for maintaining a healthy cash flow.

A healthy business requires more than strong sales and top-notch products and services. Turning a blind eye to your financial operating cycle — beginning with receiving payments and ending with investing funds back into your company — could jeopardize your company’s ability to pay bills and fund growth.

Review each stage of your financial operating cycle below to find ways to become more efficient and profitable.

1. Receiving payments

Having an efficient way to handle receivables is a critical exercise contributing to financial fitness. Online invoicing services, which let you send bills and receive payments electronically, can help expedite payments into your account and minimize the risk of invoices becoming lost. By accepting the payment methods that are most convenient for your customers — including credit cards, debit cards, and electronic funds transfer — makes it easier for them to pay you.

2. Managing cash flow

Consider using banking tools that can help you save time and optimize your cash management. These tools include remote deposit, which lets you move checks into your account directly from your desk, and sweep services, which automatically directs excess funds toward investments (or toward paying down outstanding credit balances). Banking tools may also enable you to download account information directly into your financial management software to help streamline your record keeping.

Likewise, financial software and online resources can help you track and forecast your cash flow long-term. These tools do not have to be complex — for example, some spreadsheet templates can help project your cash flow over a 12-month period. Other tools can help you compare your monthly expenses and sales figures against your projections or adjust your forecast (if your numbers are significantly higher or lower than expected).

3. Making electronic payments

Paying bills electronically can speed up transactions and enable you to see when payments leave your account. This helps avoid time lags — traditionally associated with check payments — and can give you a better sense of your current account balance. Some electronic billing services allow you to set up recurring payments for bills that are the same each month while also sending you alerts before those payments are due.

4. Funding purchases

Choosing the right financing vehicles to fund your purchases can be critical for maintaining a healthy cash flow. Term loans, which are typically paid back over a fixed period, are suitable for funding long-term expansion plans — such as opening new locations, making leasehold improvements, or purchasing equipment. Another option is a line of credit, which can be tapped into and replenished on an ongoing basis to meet short-term cash requirement needs (such as seasonal inventory purchases or unanticipated expenses). With interest rates still low, term loans and lines of credit can be beneficial, since they enable you to purchase essential business-related items while preserving your existing funds that are earmarked for other obligations.

5. Making smarter purchases

Be sure the purchases you make align with your business objectives and help strengthen your company long-term. For instance, before you buy some new equipment, make sure you can explain how it will make your operation more profitable. For example a parts manufacturer should be able to explain how a new milling machine can help speed up production and boost sales. Or, if you plan to hire new employees, consider how the new capabilities and expertise they will bring to your business will outweigh their salaries

What to remember

Giving yourself a financial check-up is a great way to ensure you’re making smart financial decisions. Knowing how to manage cash flow is essential to maintaining the health of your business, especially if you ever encounter financial shortfalls. Planning ahead will help keep your business running smoothly.

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