It used to be that your bank manager was an integral part of your business. But in these digital times – where banking is less about relationships and more about online transactions – is your bank truly supporting the ongoing growth of your business?
40% of SME customers are only ‘somewhat positive’ about their bank
79% of SMEs prefer digital banking, but 59% still want access to local branches
78% of SMEs would rather be paid digitally, yet 49% oppose the elimination of cash services
It seems we’re caught in a moment of major change, as banks and small businesses switch from traditional services, to a more online, digital future.
But is this transition adding value for your business?
The digitisation of banking is not something you can ignore. Being able to manage every facet of your business banking from your phone is a huge upgrade in so many ways. And initiatives like Open Banking are making it easier than ever to access your banking data.
But does your bank still offer help with managing your finances? And do you have access to the ready cash and long-term funding you need to expand your company?
Here are five routes to improving your banking and access to finance:
Request a meeting with your business banker
Get to know your local business banker and build a relationship. What you’ll get is personalised financial advice and support. It also helps to discuss the financial goals, challenges and future plans of the business and how financing options, like loans and overdrafts, can help your growth.Explore the banks financing options – most banks will offer a range of financing options for small businesses. Think about business loans to fund your growth, overdrafts to manage short-term cashflow needs and lines of credit for flexible funding. It’s also worth seeing if you can claim any government-backed loans, grants or tax reliefs.
Consider alternative lending and finance options
If your bank isn’t delivering the finance you need, think about other alternative finance options. Invoice financing, merchant cash advances and specialist industry loans are all available, giving you fast access to funds. Always consider the interest rates on business loans and how repayments might affect your future cash position.
Investigate private investment opportunities
When your business has high-growth potential, private investment from angel investors or venture capital firms can be a viable option. These investors deliver the capital you need, in exchange for equity in the business. This allows you to scale the business rapidly, but does mean that your investors will want some strategic control over the future direction of the company.
See if crowdfunding is an option
Crowdfunding platforms raise funds from a large number of individuals, usually interested customers or small private investors. This can be a great way to generate capital for specific projects or to launch new products. Equity crowdfunding, reward-based crowdfunding, or donation-based crowdfunding are all options to think about, depending on your business model and goals.
Talk to us about finding the right finance support
If you don’t feel that your business bank is supporting the financing and growth of your business, it might be time to explore the alternatives.
Effectively managing your expenses is crucial for sustaining growth and ensuring profitability of your business, while ensuring you have a smoother journey along the way. Whether you’re a start-up or an established enterprise, maintaining control over your finances can be the difference between success and failure. Here are eight strategies to help you better manage your business expenses and keep your finances and operations running smoothly.
1. Establish a Comprehensive Budget
Creating a detailed budget is the foundation of effective expense management. A budget shouldn’t just be a one-time task but a dynamic tool that adapts as your business grows. Start by identifying your fixed and variable costs, and use historical data to forecast future expenses. Regularly review and adjust your budget to reflect changes in your business environment, ensuring it remains relevant and accurate.
2. Monitor Cash Flow Diligently
Cash flow is the lifeblood of any business. Keeping a close eye on your inflows and outflows will help you avoid cash shortages. Implement a system to monitor your cash flow in real time — this could be through accounting software that alerts you to discrepancies or potential problems. Regular cash flow analysis enables you to identify trends and make informed financial decisions promptly.
3. Separate Personal and Business Finances
Mixing personal and business finances can lead to confusion, making it difficult to track business expenses accurately. Open dedicated business banking accounts and ensure only business transactions are conducted through them. This separation not only aids in clear financial analysis but also simplifies tax preparation and legal obligations.
4. Implement Expense Tracking Tools
Technology offers numerous solutions to streamline expense management. Consider using expense tracking software or apps that allow you to photograph receipts and automate entries. These tools can generate comprehensive reports, providing insights into spending patterns and helping you identify areas for cost reductions.
5. Review and Reduce Unnecessary Expenses
Regularly review your expenses to identify non-essential costs. This could include subscriptions, services, or supplies that are rarely used or that don’t add significant value to your operations. Make sure expenses are worthwhile, and approach vendors for better rates or seek alternative suppliers.
6. Foster a Cost-Conscious Culture
Encourage your team to be mindful of spending by promoting a culture that prioritizes cost efficiency. Educate employees about the impact of expenses on your business bottom line, and empower them to suggest improvements. When everyone is aware of financial goals, they are more likely to contribute to cost-saving initiatives.
7. Plan for Taxes Early
Taxes can be a significant expense, so it’s crucial to plan for them well in advance. Work with a tax professional to ensure compliance with all tax obligations, and take advantage of any deductions or credits available to your business. Setting aside money for taxes up front helps prevent cash flow issues at tax time.
8. Regular Financial Audits
Conduct periodic audits of your financial statements. This doesn’t necessarily mean hiring an outside firm; instead, engage a team member or business partner to review the records. These audits can help you discover discrepancies, unexpected expenses or even fraudulent activities early, allowing for timely correction.
Conclusion
Effective expense management is not a one-time task but an ongoing process that requires vigilance and adaptation. By establishing a robust budget, employing the right tools, and fostering a cost-conscious company culture, you can ensure your business maintains financial health. Implement these strategies to transform your expenses from a potential pitfall into a pillar of your business strategy, driving growth and sustainable success.
Need assistance with managing your business finances? Contact us today to learn how we can help streamline your expenses and improve your cashflow and profits.
It takes guts to start a business. It also takes a strategic mindset to succeed.
Business owners are no strangers to weighing risk and navigating uncertainty, but the recent economic climate has dialled everything up. Many business owners face the uncomfortable position of having to remap carefully thought-out succession plans and exit strategies and to consider selling their business before they’re ready and, possibly, for less than it’s worth.
Transition may be a better option
Rob Young, Managing Director of Platform 1, works with business owners on ensuring they get the best possible return when selling their business. Rob’s advice is to start by thinking about what options you have first.
There are five different ways to sell:
Close the business down and sell the assets
Sell to a family member
Sell to an employee
Just a straight sale to an outside party
Gradual buy-out – The Platform 1 model.
The Platform 1 model is a gradual buy-out program. It involves finding a manager to take the reins early on. Gradual buy-out a process that involves:
figuring out what kind of individual would be right to run the business; finding that person, and developing them.
Creating a plan where the new manager buys in gradually over 3 to 6 years. The objective is to get the owner out of the business physically as quickly as possible by transferring relationships and processes to the incoming person, so the owner becomes more of an investor rather than a manager.
Preparing for sale – what’s important
Get your house in order – Ensure you have systems and processes in place so the business isn’t reliant on you, but can run as a standalone entity.
Maximise your profit – Make sure that you are not taking decisions to minimise your tax liability – because what you’re trying to do is create a profitable business.
Don’t put off your succession plan – even if you are not ready to sell
It’s a good idea to think about this long before you need to sell so that you maximise the value of the business and achieve a better outcome. It’s also worth remembering that retirement doesn’t need to be doing nothing. If your business can run as an asset without your involvement, you don’t have to sell it completely, so not selling down 100% of the business is a viable option.
Talk to us today about your succession plan
If you don’t already have a succession plan in place, we can help so that you have options when you need them.
When you’re running a business, it’s easy to get caught up in the day-to-day activity and lose sight of the big picture. Taking stock of the health of your business is important. Knowing where you are allows for more effective planning, early warning about any issues, and the chance to better chart a course for success.
There are some quick ratios that will help you to gauge the health of your business. We can help you to assess your business health and show you how to calculate these vital checks.
Liquidity Ratios
Liquidity ratios are about how quickly you can turn your business assets into cash – which helps you assess whether you’ll be able to pay the bills if cashflow gets tight.
High ratios are better, as this means you’ve got more assets than liabilities.
Current ratio
Current ratio = Total current assets / Total current liabilities
As a general guideline, 2:1 is a good current ratio, but this does depend on the kind of industry you’re in, and the nature of the assets and liabilities.
Quick ratio
Quick ratio = (Current assets – stock on hand) / Current liabilities
This measure excludes your existing stock, which you may not be able to quickly turn into cash, and is seen as a more realistic quick snapshot of your position.
Solvency ratios
Solvency ratios look at sources other than cash flow to see whether your business will be able to settle debts.
Leverage ratio
Leverage ratio = Total liabilities / Equity
This is a measure of whether your business is reliant on debt financing or equity to fund your assets. A higher ratio can make it harder to borrow money.
Debt to assets
Debt to assets = Total liabilities / Total assets
This tells you what percentage of assets is being financed by liabilities.
Profitability ratios
Profitability ratios will let you know how efficient your business operations are. Where possible, it’s good to measure your business against others in your industry.
Gross margin ratio
Gross margin ratio = Gross profit / Total sales
This ratio tells you whether you can cover the necessary business overheads from your sales.
Net margin ratio
Net margin ratio = Net profit / Total sales
This measure tells you the percentage of sales dollars left after you’ve settled your expenses, except for your income taxes.
Checking in on your business health is a great habit to get into. Using these ratios helps you to understand your current business health and allows you to plan. Talk to us about how to calculate the factors in these ratios in order to keep your business on the right track.
Projecting your cashflow pipeline forwards is vital.
To be able to navigate the future path of your cashflow, you need to start forecasting – so you can map out your financial position over the coming months and can take the appropriate action to safeguard your cash position.
Plus, when you have access to detailed forecasts you can scenario-plan, search for cost-savings and look for strategies that will preserve your cashflow position.
Forecasting your future cash pipeline
Remaining in control of the cash coming into (and going out of) the business is the real focus, so you can accurately predict your financial position and can resolve any issues.
Key ways to get more from your forecasting
Run regular forecasts – The financial landscape is changing on a daily basis at present. A cashflow forecast is not a document that remains static. Variables and external drivers are literally changing each day, so it’s vital that you run frequent forecasts and react swiftly to any projected cash issues as they become apparent.
Use the latest cashflow forecasting apps – cashflow forecasting apps, like Fluidly, Float, Futrli Predict or Fathom integrate with your accounting software. They give a drilled-down view of how your cash inflows and outflows will pan out over the coming months – information that will inform and justify the decisions you make during these extremely challenging times.
Explore the right revenue streams – most sectors will have seen their sales change over the last 18 months. To overcome this, there’s a real imperative to explore revenue streams and new opportunities for income. This could be offering a new product or service, or working with a new partner. The idea is to find ways to increase the money that’s coming in the door and balance out your unavoidable expenses.
Get proactive with cost-cutting – if you can reduce cash outflows to a minimum, that will have a real impact on the health of your future cashflow. Pare back your operations and aim to reduce things like unnecessary software subscriptions, or over-ordering of basic supplies. Negotiating cheaper rates with suppliers, if possible, will also help.
Review your staffing needs – it’s never great to make anyone redundant, but you can also look at ways to reduce the costs of staffing and resourcing without getting rid of staff completely. Reducing working hours or redeploying staff in different roles are all options that reduce payroll costs, while also looking after your staff.
Run a variety of scenarios – changing the financial drivers in your forecast model allows you to scenario-plan different strategies and options. Many of these will be in a long-term plan once conditions improve. Scenario-planning lets you answer questions and will give you some hard evidence on which to base your decision-making and strategic outlook over the coming months.
Look at various ways to access funding – if forecasts show a giant cashflow hole coming up, you’re going to need additional funding to get through this crisis. We can assist your business to investigate funding opportunities from grants, banks, loan providers, alternative lenders and crowd-sourcing funders.
Talk to us about setting up cashflow forecasting
Forecasting is an important step to give you the business intelligence to support your decision making.
Get in touch to improve your control over cashflow.
It can feel challenging to chase up payment of invoices when the economy has been down, but it is important to keep cash flowing into your business so you can cover expenses and meet your obligations to others. As with all dealings in more difficult times, some empathy and a lot of open communication can go a long way.
The following tips are useful to keep in mind when asking for payment.
Communication – Connecting with your customers is important. Try to make it personal to their situation rather than a one-size-fits-all email. Connecting on a more personal level shows you value them and are conscious of the impacts that the current situation may be having on them. The empathy you show now will also be remembered when the economy recovers. Be proactive – early communication will help you stay on top of cash flow and will also alert you if you need to account for late payments.
Offer flexible payment options – for customers who can’t pay in full, consider breaking invoices into multiple payments with payment terms moved to a longer timeframe. Set up a credit card facility to give customers other options for payment. After all, the easier you can make it for them to pay you, the quicker you will get paid. If you don’t have payment services set up in your accounting software, we can help you do this. Offering a discount for early payment might provide the incentive, for customers who can settle, to pay your invoice before others.
Total Outstanding – Make sure you keep track of how much customers are in arrears. While you can continue to allow credit, you want to make sure you’re not creating too much risk. Allowing continual extensions to payment while also letting more to be added to their total amount outstanding can create a cashflow crunch. Get in touch if you want help to better track your cash flow.
