Making ends meet can be an endless struggle for small business owners. If you’re managing to avoid falling behind in your ongoing obligations but you’re not achieving the profit margins that you’ve set out to achieve, it’s time to reassess your long-term financial strategy. Here are five things that you can do to put your business on track to reach your goals.
1. Boost Your Credit
Building creditworthiness is going to make you better able to get a business loan with reasonable interest rates. Loan proceeds could help you cover key operating expenses, invest in new equipment, or make improvements to your operating space. To qualify for a loan, you’ll need solid credit working in your favor.
Get to work on improving your creditworthiness by checking your business credit score. If you happen to find any errors, you have to dispute them rather than wait for them to age out. When you’re dealing with lenders or prospective creditors, they’ll hold you accountable for everything on your credit report regardless of whether it’s accurate. As a matter of policy, they have to interpret your score and report as they stand.
Be consistent about making timely payments on all of the active tradelines on your report. Try to keep your total utilization down. It’s a good practice to use no more than thirty percent of your available credit. A great tactic to lower your utilization is to increase your credit limit on your active accounts. You could also take out new accounts, but be aware that taking out too many new accounts at once might cause some short-term damage to your standing. An excessive number of inquiries on your credit report can lower your score.
2. Tackle Debt
A high debt-to-asset ratio can put your business in a precarious position. Being in a lot of debt could be a bar to new financial opportunities because lenders may see your situation as being too high-risk. Furthermore, your repayment obligations will stifle your spending power and make it tough to direct sufficient funds toward development.
Instead of prioritizing which debts to pay down first based on their age or balances, go by interest rates. Paying down balances that have the highest interest rates first will reduce the total amount that you have to send on interest.
If you accumulated a lot of debt when you were getting your business up and running, odds are that you might already be spending a considerable amount of your revenue on interest. High interest rates can make even moderately sized obligations grow significantly in just a few years. Restructuring or consolidating debt could make it possible to spend less on interest over time and also pay down principal balances faster.
3. Sell Your Accounts Receivable
If you have outstanding receivables, selling them to a factoring company could help you harness their value without having to wait for your customers to pay you. In these types of transactions, you have to resign yourself to accepting a payment that’s less than the face value of the invoices. If factoring companies paid you the full value of an invoice, there wouldn’t be any upside in it for them.
The value of your receivables depends on several different factors. Age is one of the biggest considerations for factoring companies. Typically, they prefer to purchase security interests that are fairly new. Old invoices are harder to collect, and companies or individuals that aren’t paying creditors may go into bankruptcy.
4. Monitor Your ROI on Marketing Activities
You have to allocate a decent amount of your working capital towards marketing in order to win over new customers, but you have to plan those expenditures wisely. You don’t want to put a lot of time and money into marketing and wind up without anything to show for it.
Use data analysis tools to determine which tactics are generating interest and leading to more sales and which outreach methods aren’t paying off. Understanding these metrics will let you know how to guide your marketing campaigns going forward.
One of the most notable advantages of selling your accounts receivable is that it spares you from going into more debt. You won’t risk overextending your resources by taking on a new payment obligation.
Ultimately, smart planning and good oversight can help you improve your small business’ financial health dramatically. Getting a better hold on your finances will make you better able to manage your overhead costs and invest in growth.
