Is there a better time than the first work days of the year to reflect on business goals? If you spent the final days of 2017 scrambling to collect data and make reports, it’s time to review the past year’s business performance. For many businesses, this is the only time of the year when they have a complete set of accounts. Through them, you can see how much money you are making and spending; specifically, where the majority of your profits and revenue come from, and where your money is being spent – and if some of the expenses are unnecessary and can be cut.
You can also use 2017 reports to check on business health. Here are 3 tips to help you start your business on the right track in 2018.
Check the health of your business
Other than revenue, profits, loss, available working capital, total assets, and debts to pay off, other factors within your financial statements can help you determine business health. For one, check the balance between revenue and expenses overtime. With business development and expansion, it’s perfectly normal to spend more on expenses. However, a healthy business will balance its revenue and expenses, with spending under control.
But more than financial ratios, comprehensive market research and understanding of clients bolster business success. It is paramount for a business to have a strong and well-thought-out business plan to cope with supply and demand uncertainties. A clear business plan helps align goals and unites your team by having their responsibilities defined and working towards a common vision. Haven’t got a business plan? Take the time to make one – it is of utmost importance.
Better manage working capital
Efficient working capital management ensures business liquidity. Liquidity may often be overlooked, but it is arguably as important as profitability. A business needs cash to cover short term expenses.
To figure out where you stand, calculate your current working capital ratio. Divide current assets such as cash, inventory, and accounts receivable by current liabilities. If the ratio is less than one, your business does not have enough working capital to settle short term debts. While the standard varies across industries, a ratio greater than 1 implies the business is in good financial position.
If you are struggling with managing working capital and need more cash, try looking into your stock inventory and invoice management practices. Perhaps you are carrying more inventory than needed and should adjust orders to optimize storage. Or perhaps much of your income is tied up in accounts receivable.
Consider a business loan in the new financial year
If your business goals for 2018 include big projects and development plans, maintaining sufficient capital is key. Depending on the amount of capital you need, you may need to apply for a business loan. Here are some instances where the timing may be right to start researching for suitable business financing:
- You are looking to fund capital expenditure to optimize business productivity, (i.e, you need more equipment to accommodate growing sales volume but current profits are not sufficient to cover the costs).
- You want to start business expansion or expand your product offerings. To do so, you need enough capital for various expenses, such as research and development, building new outlets and channels, hiring more human resources, launching marketing campaigns, etc.
- You need to fix some cash flow issues, perhaps if invoice payments are late or consistently get stuck. Business solutions that allow you to convert accounts receivable to cash, such as invoice financing can help you enhance cash flow while you put a more efficient invoice process in place for your company.
The start of a new year is a hopeful time. You haven’t missed any deadlines and the days feel full of opportunities. This is the time to (a) discover problem points to fix, (b) understand how healthy your business is right now, and (c) know what to do in order to achieve all the targets you have planned for 2018. Good luck!