Finance Health Test: How Healthy Is Your Business?


Any business will know the difficulties of the financial crisis and most likely have felt a large impact from the cutbacks on all levels. This is why it is very important that any SME look closely at its  finances  on a regular basis, to give it a sort of “health check” and see where you stand with your bank balance.

Doing this can have many benefits, not least that you stay on top of things and don’t let debts increase, but also that you can foresee any impending difficulty and respond to it as soon as possible.

One vital part of managing your  finances  is being prepared and responding quickly, so in this sense a health check every 3 months to start and then 6 months afterwards can really put you in good stead. You can conduct a financial health check easily with your  finance  team, or with a financial adviser.

Here are two key areas to look at when conducting your health check:

Improving Cash flow

Your sales may be steady, but perhaps your cash flow is not as good as you’d like. This is usually down to customers who pay you slower than usual, which can be detrimental to your monthly books.

In order to eliminate or at least reduce the stress associated with poor cash flow, create an emergency fund that will allow you to cover your expenses. Something like a cash merchant advance is a good way of accessing emergency funds when cash flow is tight.

Also, keep on top of your invoices so that customers remember when and how to pay. Setting up a reminder service is a good idea, and if you have an accountant then they should be chasing customers regularly for payment.

Managing Debt

Any SME may have debt, from a small office based firm to a shop or outlet. You may have taken out a loan to help your business grow and are unable to pay the full repayments each month.

A healthy company should know to limit their debt-to-asset ratio to 20%.

To help with your debt issues, carefully write out how much debt you have in your company, and be careful not to leave anything out. It is better to be honest at this stage. If you are having difficulty, speak to your creditors early on so they can help you with reducing payments whilst you get back on your feet. You might also want to speak to an impartial financial adviser.

If you have an emergency bank account where you can access funds, you may want to draw on this before your debt gets worse with interest rates and late payment fees.

However, not everyone has an emergency account. Cash merchant advances may also be a good idea in this situation. Let’s take the example of a hotel company. A hotel business may have taken out a hotel loan to help with refurbishment and marketing costs. This is vital to the growth of the company, and is a way of improving the company’s future and securing its growth. The cash merchant advance can provide you with anything up to £150,000 which can be used to cover spiralling debts and payments, and can be paid off with a small percentage of every customer’s card transactions when they pay. This is a flexible way of managing debt and the loan can even be extended after a certain amount has been paid to further invest in the company.

Source by Andrew A Cooper

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