What Makes A Financially Healthy Business?

How do you know that your business is in a financially healthy position? You may think that so long as you’re making money, things are good. There’s no doubt that a healthy intake is certainly part of it, but it’s far from the whole picture. Many small business owners are let down by financial details that they fail to take notice of.

Here, we’re going to take a closer look at what, exactly, goes into healthy business finances. We will also look at what you can do to get control of them and keep them in good condition.

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Your Budget

First of all, every business should have a budget. You should have a complete picture of what you currently have, what you’re making, and what you’re spending. This budget should include routine and planned expenses as best as possible. There is business accounting software that makes all of this much easier to track. If you lose track of your budget, you will have no idea how good your business finances really are. Don’t let that happen.

What You’re Owed

Your financial health isn’t just what you currently have in your bank account, either. A lot of businesses work on invoices or collect payments after finishing their work. You should track accounts receivable, for one. Whether accounts receivable asset or liability depends on whether you’re willing to chase them up. Otherwise, you could have money that your business is owed that you’re simply not using. It’s a good idea to set up an invoicing system that helps you chase payments you’re owed. Otherwise, clients can easily forget or otherwise fail to pay what they owe on time.

What You Owe

Just as you should track what money you should expect to come in, you should track what you can expect to pay, as well. This can include any credit cards or loans you have to pay, as well as invoices from your own service providers. Trying to analyze your cash flow without considering what you owe paints an incomplete picture. You might not have as much money as you think. Take into account what payments you have to make and when you have to make them. Consider debt reduction strategies like paying up on certain accounts to free up cash flow. Whatever you do, don’t ignore what you owe. That only makes the problem grow.

Expense Tracking

Every business accrues expenses. It can be as simple as paying for a business meal with a client. Expenses only become a problem when you fail to track them. There are plenty of good expense-tracking apps you can make use of. Try to save your receipts or at least copies of them to keep in your books. Without tracking them, it’s very easy to forget some of your expenses. This can lead to you finding that you have less money than you expected because you’ve been spending more than you think.

Your Savings

Good cash reserves can be a very valuable asset for a business to have. While you might want to invest all your profits back into the business and help it grow, some should be set aside. A decent business emergency fund can save the day. You might find sudden costs arising in the future that you aren’t able to pay through normal cash flow. Lean periods of business can also strike. Emergency funds can help you keep the lights on and help you avoid making cuts, such as to your employees. Start setting some money aside for savings ASAP.

Your Financial Protections

When a financial disaster strikes, having an emergency fund can save your skin. It’s not the only kind of protection you should be investing in, however. The right business insurance coverage can do a lot to protect you. Of course, you should get an idea of how much you are legally obliged to purchase, first and foremost. After that, however, seriously consider the risks facing your business. You might even perform a risk assessment to see what level of insurance will best benefit you. This can prevent crises down the line from becoming overly expensive.

With the tips above, you should have a better idea of how to get a complete picture of your business’s financial health. There are going to be other costs, sources of income, and factors to consider as the business grows. So long as you make an effort to track all of it, you should be much better informed than the average business owner.

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