6 tips to improve the financial health of your business

6 tips to improve the financial health of your business

Finance & Accounting

Anirudh Gupta

Anirudh Gupta

29 Jan 2019, 09:44 — 5 min read

Summary: Just like your good health determines your wellbeing, a company’s financial health determines its viability and growth prospects. Do you think your company can pass the financial health test? Or is there something you can do to improve it? SME expert Anirudh Gupta shares some tips to set and achieve financial goals for your business and thereby improve its overall financial health.

Growing companies are like growing children. While a growing child needs a proper balance of nutrition and activity, a developing business requires a solid financial structure and goals. Below are some tips to improve your business' financial health.


1. Understand your current financial structure

Every firm has a mix of debt and equity. The ideal structure depends on the nature of the business. It evolves basis current opportunities as well as threats to the way business is run.

The structure can be understood in terms of:

  • Payment terms - If you are offering better cost benefits or value-added services then better terms can be negotiated.

  • Cost of debt - If the accounts are in order and company is profitable debt can be raised on lower interest rates thus improving profitability.

  • Growth opportunities and cost of equity associated therewith - Every industry has a phase of growth. Given the dynamic world we are in equity makes a good business case if growth is predictable and strong.

  • Structures which can be explored - One may look at transitioning to LLP (Limited Liability Partnership) or Private Limited structure to further their reputation and business.

A good exercise is to benchmark this with your closest competition and see how you can plan better. A starting point is setting of profit targets at a unit level, implying a deep understanding of unit economics as well as segments to target business growth.

 

2. Adopt a profits-first approach

Businesses which work on profits-first as an approach tend to survive over the longer term. This is because they look at specific ways of working that yield profits. They also experiment with different approaches to stay relevant and profitable.
There are a few things which every business can do to grow outside their comfort zone and expand their market reach for the future.

  • Having a marketing team
  • Professionalising the organisation
  • Setting new standards for business excellence


Vijay Sales, an electronic retail store chain has a strong business aim of conquering every city gradually. They have taken a profits-first approach, and this has helped them stay focused and flourish in a very competitive and price sensitive consumer market, especially when customer loyalty is fickle.

Targets can be set as a mix of product targets, product group profitability and cash flow regularity. One of our clients looks at daily cash flow as critical to the survival and growth of the business.

 

3. Negotiate better terms with buyers and suppliers

Negotiating the right way with buyers and suppliers can earn ample profits for your business. With buyers one could look at negotiating payment terms basis service levels. This helps to create a foundation for the future.

Many firms make advance payments for products to get a good discount.  For example, at our office we order envelopes for a year in bulk. This helps us reduce costs. You can apply this principle while purchasing stationery or any other official equipment. 

 

4. Fire your non-profitable clients

Some clients drain excessive energy vis-à-vis the value they add. The good practice is to figure out which ones are they and remove them from your business chain. This also sets a standard and reputation in the industry while growing your business.

5. Motivate your distribution chain

The annual getaway/strategy meet is a good time to evaluate, motivate and give more responsibilities to your people. Leadership at every level is essential to build the right culture and make it possible for profitability to emerge.

6. Create a CSR budget

For many companies, CSR (corporate social responsibility) is not a priority right now. Growing businesses must achieve the right balance of social, economic and environmental goals. SMEs need a proper approach to take up CSR in order to retain their economic viability. This also helps the organisation build bonds of trust at a team level and aligns the organisation with a higher sense of purpose.

Running a business is challenging. But setting goals and targets can make things smooth sailing for you. Do share your thoughts on setting and achieving financial goals to improve your business’ financial health. 

 

To explore business opportunities, link with me by clicking on the 'Invite' button on my eBiz Card.

 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker. 

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