Three Ways To Create More Financial Strength For Your Business (2024)

What Is Financial Strength?

Financial strength is vital for a business to be successful. It is a key component necessary for a business to sustain, grow and ultimately return capital to owners. At its most basic level, financial strength is the ability to generate profits and sufficient cash flow to pay bills and repay debt or investors. Most business owners are focused on generating sales to increase profitability, however, sales alone do not build financial strength. Below are three ways to create more financial strength for your business.

• Understand Your Company’s Finances -- I know that most business owners are not interested in financial statements, budgets, ratios and everyday accounting. However, the long-term success of your business depends on you understanding your company’s financial situation. All business owners should take the time to put together a budget for their business, then monitor and compare it to actual results on a regular basis. Understanding your company’s financial situation will give you a view into the financial health of your business, allowing you to make better day-to-day decisions.
• Strong Accounting Practices -- If accounting and finance are not your strong points, get a good accountant or CPA to manage your business’ finances. In my experience, companies with mismanaged finances or poor accounting practices struggle more and deal with more financial problems than companies that view strong accounting practices as an important aspect of their business. If you cannot afford an accountant, take the time to learn the accounting basics and use software such as QuickBooks.
• Effectively Manage Cash Flow-- Adequate cash flow is ultimately the key to creating financial strength, but managing cash flow is difficult and time-consuming. You have to know when your receivables are due and compare that to the due dates on your outstanding bills. You may also deal with cash flow cycles in your business where you experience heavier inflows of cash during certain times of the year. Below are few suggestions for managing cash flow.
  • Invoice as soon as possible. I know some business owners that mail all of their invoices once a month. This is not a good cash management practice. Once work has been completed or product has been shipped, the invoice should be sent out immediately.
  • Have a good collection policy. After you have sent an invoice, follow up with your customer if payment is not received in a timely manner. Send a friendly reminder a few days before the date and again if payment is not received after the due date.
  • Manage expenses and payables. It is imperative for a business owner to monitor and manage costs. Look for ways to reduce expenses such as asking vendors for early payment discounts or volume discounts. Another suggestion is to utilize technology or outsourcing to reduce overhead expenses.
  • Avoid cash flow shortfalls. All business owners have a cash crunch at some point. The goal is to anticipate these situations and have a plan in place. One way to plan for a cash shortfall is to get financing in place such as a factoring line. Factoring allows you to get cash from your accounts receivables without waiting 30, 60 or even 90 days to get paid by your customer.

    Today, factoring is an increasingly more popular and widespread form of commercial finance, particularly with small businesses that are unable to qualify for traditional financing. As with any form of cash flow financing, you should understand the most basic types of factoring and the various services that are offered. Factoring provides flexibility unlike other forms of finance and is useful when you need cash but don’t want to incur debt.

  Importance Of Financial Strength
  As a business owner, you can’t expect to succeed without building the financial strength of your company. You cannot keep hoping that as long as you keep the sales coming in, your business will succeed. Placing an increased focus on the financial strength of your business and consistently monitoring your financial performance are crucial to obtaining profitability, growing your business and achieving success.

  Fast A/R Funding specializes in helping small businesses bridge the cash flow gap with factoring. Schedule a demo below, or call 888.833.2286 to speak with one of our small business finance consultants.