Tips to Ensure the Long-term Success of Your Company
Small businesses are the backbone of the American economy. They create jobs, stimulate innovation, and drive growth. However, many small businesses struggle to stay afloat due to financial instability. To future-proof your business finances, it’s wise take a proactive approach and make prudent financial decisions. Following are several tips that can help you achieve this goal.
Manage your Cash Flow Carefully
One of the biggest challenges small businesses face is managing their cash flow. They often have to reinvest a large portion of their profits back into the business to keep it running. As a result, they can quickly become cash-strapped and find themselves in financial difficulty.
To avoid this situation, you need to manage your cash flow carefully. Track your income and expenses, set aside money to cover unexpected costs, and only reinvest what you can afford to lose.
Not all revenue is created equal. For example, if you sell a product for $100 and it costs you $50 to produce, your profit margin is 50%. However, if you receive payment in 30 days and it takes 60 days to make the product, your cash flow will be negative. In this case, you need to either increase your prices or offer a discount for early payment.
Related: Common Cash Flow Pitfalls to Avoid
Reduce Your Expenses
As a small business owner, you must keep a close eye on your expenses. Even the most minor expenses can add up and eat into your profits. To reduce your costs, you need to get creative and find ways to cut costs without compromising the quality of your products or services. Here are a few tips.
- Review your expenses regularly. This will help you identify which expenses are necessary and which ones can be cut.
- Negotiate with suppliers. If you’re paying too much for materials or services, reach out to your suppliers and negotiate a better price.
- Automate where possible. There are many ways you can automate your business processes, from accounting to marketing. This will save you time and money in the long run.
- Outsource where possible. Outsourcing can be an effective way to save money, especially if you cannot do specific tasks yourself.
- Invest in technology. Technology can help you automate tasks and make your business more efficient. For example, if you’re still using paper invoices, switch to an electronic invoicing system.
Diversify Your Revenue Streams
When it comes to business, the saying goes that “diversity is key.” And while there’s no one-size-fits-all answer to this advice, diversifying your income streams is a great way to mitigate risks and ensure your business remains stable — even in tough times. So how can you go about doing this? Here are a few tips.
- Start by evaluating your current revenue sources. What products or services generate the most income for your business? Can any of these be adapted or duplicated to create new revenue streams?
- Look for complementary products or services. Offering complementary products and services can help build customer loyalty and increase overall sales. For example, if you’re a web developer, you could offer web design services or vice versa.
- Add affiliate marketing. This type of marketing promotes other businesses’ products or services on your website or blog. When a sale is made, you earn a commission. This is a great way to generate additional revenue without creating new products or services.
- Use subscription models. More and more businesses are using subscription models to generate stable, recurring revenue. If you offer products or services that people use regularly, consider switching to a subscription-based pricing model. This will give your customers the option to pay for your products or services monthly or annually, providing your business with much-needed stability.
Related: How to Boost Your Business Profits
Create a Contingency Fund
Create a contingency fund. This is a fund you can use to cover unexpected costs or keep your business afloat during tough times. To create a contingency fund, you need to set aside a portion of your profits each month. The size of the fund will depend on your business’s needs and risks.
Most businesses set aside three to six months’ worth of expenses. This will give you a buffer if you experience a sudden drop in income or have to make a sizeable unexpected purchase.
Invest in Insurance
Insurance can protect your business from various risks, including natural disasters, property damage, and liability.
The type of insurance you need will depend on your business’s risks. For example, if you have a brick-and-mortar store, you’ll need property insurance to protect your building and contents from damage. You’ll need liability insurance to protect your business from lawsuits if you have employees.
No business is too small to benefit from insurance. Even if you’re a one-person operation, it’s still a good idea to have insurance in place.
Have a Succession Plan
What will happen to your business if you retire or become incapacitated? Having a succession plan in place will ensure your business can continue to operate even if you’re not there.
A succession plan outlines who will take over your business and how it will be transferred. The plan should include provisions for funding, training, and support.
Creating a succession plan can be complex so it is highly recommended to get professional advice in creating it.
Related: How to Recession-Proof Your Business
The Bottom Line
Future-proofing your finances helps ensure the long-term success of your business. By taking steps to reduce your expenses, create cash reserves, and diversify revenue, you can protect your business from various risks. Having a succession plan in place will also ensure your business can continue to operate even if you’re not there. While it’s impossible to predict the future, taking these steps will help you prepare for whatever comes your way.
Your Questions Answered Quickly
Whether your business is thriving and you can’t keep up, or you are waiting on clients to pay, Universal Funding can help your growing company. Call us at 800.405.6035 or complete our rate form today to learn more about invoice factoring and how it can improve your company’s cash flow.
About Universal Funding
Universal Funding is a nationwide invoice factoring solutions leader, supporting growth-focused businesses with scalable factoring solutions. With its invoice factoring, payroll funding, and purchase order financing services, Universal Funding provides clients with the working capital needed to grow and support their businesses without taking on new debt. Ranked as one of the nation’s top invoice factoring companies, Universal Funding provides cash flow financing for businesses all across the United States.