Tips for Giving Your Small Business a Financial Spring CleaningSmall Business Management
Spring cleaning your business essentially refers to streamlining all vital aspects of your business such as taking care of old bills, following up on overdue invoices, and taking stock of your long-term business plans. Not only does it help you stay prepared to face the contingencies, it helps you save costs in the long run as well. For example, if a company with $30,000 monthly operational costs is able to streamline its operation and reduce its expenses by 10%, then they could save as much as $3000 per month which translates to a whopping $36,000 annually.
Let’s take a look at the different ways in which you could spring clean the financial aspects of your business.
Revisit Your Payment Policies: Nothing hurts cash flow of a small business quite like late payments. Therefore, as a small business owner, you need to determine what percentage of your customers are taking too long to pay. Prepare an accounts receivable aging table to find out the customers with outstanding payments according to the amount of time the money has been owed. Organize them into 30-day groups, e.g, 1-30 days, 31-90 days, 91-120 days. The whole idea is to segregate customers based on the length of delay in payments. Apart from using this information to collect unpaid debts from your customers, you can also restructure your payment policies, i.e. eliminate some customers who habitually pay too late.
Assess Your Pricing: Reassessing your pricing model is an essential part of financial spring cleaning of small businesses. Whether you sell products or offer services, optimizing your pricing is crucial to staying profitable. However, this is easier said than done. Market conditions tend to change from time to time which requires that you should compare your pricing with your competitors’ to see that you’re offering your products/services at the right price.
Review Paid Subscriptions: Many businesses sign up for software for a particular project and then forget to cancel the subscription after the project is over. Most software companies have your credit card on file and set it on automatic renewal. This can lead to unwanted expenses without you even realizing it. Financial spring cleaning is an opportunity to reevaluate your recurring expenses and determine if you truly need them. There’s no point paying for a software service every month without actually using it.
Explore Opportunities for Re-negotiations: Nearly all businesses enter into some kind of long-term service contract to save money. For example, a moving company can enter into a long-term lease agreement with a third-party instead of buying vehicles on its own. However, with changing business scenarios, you might want to explore opportunities to re-negotiate your long-term contracts and see if you could save some money.
Check Cash Balances: The arrival of summer typically prompts many businesses to hold off on their major purchasing decisions until fall. From a small business’s perspective, this is a challenging time since they must pay for the recurring expenses such as rent and electricity even though revenues drop. In order to negotiate with this slow business period, you must ensure sufficient cash balances until fall when business comes back to normal. The financial spring cleaning offers you an opportunity to check your cash balances and see if you’re fully prepared to see through the period. Unless you have sufficient funds, it’s wise to go for a working capital loan or a new line of credit.
Financial spring cleaning of your business can seem like a lot of work at first; however, it’s crucial to the operational health of your business. By reviewing and adjusting a few essential aspects of your business, you can save a great deal, allowing your business to stay healthy and prosperous in the long run.