If you are starting or have started a small business, you are probably focused on creating your product or service and implementing your marketing plan to gain as many customers as you can as quickly as you can. However, in this mad rush, you may be forsaking some financial planning strategies that can help your business succeed. These are a few tips to consider.
Research Funding Options
If you haven’t pursued funding to this point, you probably self-funded your business. This is common with small businesses. Initially, this funding is probably sufficient, but as your company grows, you may need to seek additional funding. In addition, self-funding can put you at personal financial risk because you lose your financial diversification and may incur significant personal debt. Therefore, your first step in small business financial planning is to explore additional funding options.
Research the benefits of venture capital, crowdfunding, angel financing, traditional bank loans, grants, competitions and other funding options. Their support levels, required credit and equity levels and repayment periods, as well as the support they provide, may differ significantly, so choose the options that are best for your business.
Ensure Healthy Cash Flow
Your cash flow determines your ability to meet your current obligations, such as employee salaries, monthly bills and raw materials. The challenge is balancing your need for assets, such as inventory and real estate, with the cash flow you need to run your business. Conducting a cash flow analysis will help you identify your current status and plan for the future.
Make Liquidity Your Focus
Although your company may appear sound on your balance sheet, you may still experience financial challenges because your assets may not be liquid, or easily converted into cash. Yes, you should have fewer liabilities than assets, but at least a portion of your assets should be liquid so that you are able to pay your short-term financial obligations.
Funding sources always look at liquidity before granting you loans. They will also look at your cash conversion cycle, days payable outstanding, days sales outstanding and days inventory outstanding, so you should keep track of these metrics.
Protect your company’s financial future by focusing some of your time and energy on financial planning.