Every entrepreneur aims to achieve success in business. As everyone knows, money is vital in any type of enterprise, therefore, knowing how to invest, save and profit is essential to ensure the company’s financial health.
Given such a fierce market, keeping finances up to date is of paramount importance to stand up to competitors. For this to be possible, it is necessary to analyze, evaluate, monitor and control all operations, from the input to the output of resources.
Aiming at answering all your questions about how to apply these didactics in your enterprise, in this post we have 4 essential tips to maintain the financial health of your company. Read carefully and check it out!
What is financial health?
In a nutshell, financial health means – honoring commitments to third parties, paying for expenses and costs arising from business activities, guaranteeing working capital to optimize potential investments and still obtain profits at the end of operations.
For you to know how your business’s financial health is, it is essential to analyze the real situation of the company. Work with actual values and financial accounting indicators that demonstrate how the money is being applied and what are the bottlenecks that spend the most.
It is useless to work with imaginary amounts, without certainty of how and where such data came from, as this may even lead to the bankruptcy of a company in the long term. By using safe indicators and reliable information, it is possible to outline strategic actions that enhance the decision-making.
How to maintain financial health in business?
Ensuring the financial health of a company is not an easy task and does not happen overnight. For businesses to be able to face competition and go through periods of crisis, it is necessary to follow some routines that will ensure greater control of finances. Check out the main ones.
1. Cost management
Cost is inevitable for the development of any activity; therefore, it is the main factor that influences the formation of the sale price and the financial management of the entire company.
An efficient cost management guarantees better results, as it enables establishing a profit margin that is in line with the entrepreneur’s desire and the company’s need and provides data on the performance of activities, thus making it possible to maintain or change the practices carried out at certain times.
By performing routines such as this, the benefits are immediate, as you will be able to reduce the risks of the business, pricing the products correctly and, consequently, increasing the company’s profitability.
2. Management of accounts payable and receivable
Organization is the key to success in financial sectors. Given this, two main pillars of this sector emerge: accounts payable and accounts receivable.
In this sense, it is essential to pay attention to payment terms so that all obligations are paid on the due date, as this prevents the company from being subject to fines and interests. In addition, meeting the deadlines of accounts payable makes the relationship with suppliers easy to negotiate.
As for accounts receivable, the premise is the same: controlling the receipt dates, as well as provisioning potential defaults by customers with this sector, are crucial to not jeopardize the financial health.
Thus, if any customer does not honor payments, your company will be prepared for this unforeseen event. In addition, with the actual data on how much the company is yet to receive, the planning of future investments is made more safely. This management is done by using cash flow.
3. Cash flow control
This tool is the right hand of managers, as it contains managerial information of the day-to-day of the company. When done correctly, the cash flow demonstrates all the inputs and outputs of the enterprise, allowing a future view of the finances.
Cash flow is decisive for the financial output of businesses, as it can be prepared on a biweekly, monthly, quarterly or half-yearly basis. The period should be analyzed according to the individual need of each enterprise. As a result, by checking the flow, the manager will know how much they will have to pay in the next periods.
However, it is worth remembering that for this tool to bring positive results, it is essential that all inputs and outputs are recorded in it, regardless of their amount.
4. Inventory control
How many times have you heard the phrase: “idle inventory is idle money”? Understanding indicators such as inventory turnover is essential to know how long the merchandise is idle in your company.
Another factor that needs attention is the minimum stock and the maximum stock; all these metrics are part of inventory control. When well prepared, they guarantee a turnover of inputs and goods, consequently contributing to the financial health of businesses.
What mistakes to avoid in order to not jeoperdize your company’s financial health?
Knowing what should be done to maintain the financial health is not enough; there are vital mistakes that need to be avoided so that jointly the management actions achieve the desired results.
The main and most common mistake in enterprises is to mix personal expenses and business expenses. This can inflate the costs and jeopardize the finances considerably.
Another factor that cannot be overlooked is not considering the accounting information for decision-making. This knowledge is a rich source of financial and managerial data and indicators that guide safer and more positive decisions.
As you can see, financial health is vital to ensure the continuity of business activities. Thus, when these routines are applied in a conscious way, success is near.
Now that you know the main tips on how to maintain a company’s financial health, also read “Strategic financial management: how management software can contribute?”.