Financial planning is one of the most important business tasks. The main reason is that funds are more than necessary for running a business.
No budget means business failure, it is as simple as that. However, even if your business does have a solid budget, the way you spend it may have negative consequences, and if
As a matter of fact, 29 per cent of startups fail because they ran out of cash. The same can happen to small businesses and even large enterprises. Saving money is, therefore, of the utmost importance for businesses.
But why exactly should you save money, to begin with? The main reason is that every business needs cash and cash is the most liquid asset a company can have.
Any other asset, such as equipment or real estate, needs liquidation time. With cash on hand, you can make immediate payments or investments.
Moreover, you can always improve your company’s financial health if you have money saved away. With that in mind, here are a few ways your business can save money.
1. Cut down on operational costs
This strategy can be quite a challenge but it is also a great way for your business to save money.
Cutting down on operational costs means reducing expenses regarding development, marketing, labour, manufacturing, production and so on. In other words, you are trying to cut costs on every business operation that will eventually yield a return on investment (ROI).
However, this is where things tend to get a bit tricky. As a matter of fact, oftentimes, reducing operational costs also means reducing product or service quality, which is, of course, a bad thing.
Your customers will eventually notice that your products or services aren’t as good as they were before, leading to customer outrage and a lot of bad publicity. What you want to achieve is reducing operational costs without sacrificing quality in the process and that’s the tricky part.
2. Cut down on overhead costs
Overhead costs are much easier to cut down on than operational ones. Overhead expenses include every business expense that is necessary but won’t yield any ROI whatsoever.
For instance, overhead costs include rent, taxes, utility, maintenance, bills, travel expenses, legal and accounting aid, advertising and so on. By reducing these costs, you can greatly improve your company’s cash flow and ultimately save money in the process.
As an example, as a business owner who’s on the road a lot, you can consider using a proper petrol credit card with a cashback program. That way, even though you spend money on trips, you can still save money in the process.
Other strategies to cut down on overhead costs include getting a better lease deal for your office if you are renting a space, paying bills on time, trying to lower your electricity bill, getting rid of a landline if you are not using it and so on.
3. Pay your bills on time
As mentioned before, paying bills on time is a way to cut down on your overhead costs. However, this factor alone carries a lot more importance to saving money.
As a matter of fact, being late with bill payments leads to late fees that are simply an unnecessary expense you should avoid.
You have to pay the bills either way so you might as well do it on time and save the money you’d normally have to give away on fees. These fees can become a major burden over time, especially since they can stack and lead to high-interest rates.
Another important thing regarding being late with bill payments is that it can not only hurt your cash flow but also your credit score.
A bad credit score for either a company or a business owner is a disaster. You might get denied a loan because of it when you need it the most. You might also have to pay for expensive insurance premiums for your business and get high-interest rates when taking business loans.
4. Save money in a separate account
A good financial practice for business owners is to allocate a portion of their salaries, as well as any money they manage to save, to an emergency savings account, that is separated from any other business accounts.
That way, you can actually save money for rainy days. When funds are placed aside this way, you won’t have to tap into the account unless you absolutely have to.
Moreover, banks or other financial institutions won’t draw funds from that account if you have automated payments set up. With your savings account being a separate entity, you will always have money for emergencies.
These funds can be used to make immediate payments, such as fixing or buying new equipment, covering unexpected medical costs, improving the company’s cash flow and other financial factors that may come your way.
5. Try to get paid on time
Business finances depend on how timely your customers are with their payments.
If you don’t get paid on time, you have to cover the expenses out of your own pocket or business budget, which can have serious negative consequences on your company’s financial health. This is especially true with invoice payments.
A lot of businesses today allow customers to pay via invoices as they are one of the most convenient payment methods.
However, invoices can take anywhere between 30 and 120 days before they are due. During that time, you still have expenses to focus on, such as bills, taxes, salaries and so on. Simply put, you are generating revenue without actually being paid with cash.
This can easily lead to bankruptcy if you are not careful enough. Essentially, bankruptcy refers to a legal process initiated by a person or an entity that is unable to pay certain financial obligations. It also provides them with an opportunity to start fresh by seeking relief from all their debts.
However, if you decide to file one, you need to familiarize yourself with the different types of bankruptcy. These can include:
- Liquidation – It allows you to dispose of your unsecured assets to clear your debts.
- Large Reorganization – It is usually common among business owners since its goal is to reorganize the business and make it profitable again.
- Repayment Plans – It is available to individuals or businesses with a consistent income to come up with debt repayment plans.
Given these types, filing a bankruptcy can be a challenging process. Not only that but there are also other things to consider, such as the consequences of initiating the said legal proceeding.
As such, you may want to ask yourself this question, ‘what happens when you file for bankruptcy?’ To help you get the answers, it may be best to consult a reliable bankruptcy lawyer.
With all the things mentioned above, bankruptcy is one of the things don’t want to happen as much as possible as it can adversely affect your financial situation. Therefore, try to get paid on time by encouraging customers to pay their dues.
What’s more, if all else fails, you can consider an invoice factoring to get paid before invoices are due. The company that does the factoring for you will collect payments from customers in due time.
Managing business finances and saving money in the process can be a daunting task. This is especially true due to the fact that even a simple financial mistake can ruin your company’s financial health entirely.
That is why it is very important to save money wherever you can and implement strategies that will allow you to manage your business budget more effectively.
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Keith Coppersmith is a business and marketing expert who has experienced both the rise and fall of many businesses. He enjoys writing and providing insight based on both practice and theory.