If you are dealing with small business debt, you aren’t alone: a U.S. Small Business Administration study on small business finance, says 63% of all small businesses have some amount of debt. Managing that debt among other aspects requires routine financial reviews, and staying ahead of issues before they become detrimental in the long run.
Every day, we speak to business owners seeking funds about their financial health. We know a thing or two about the struggles they face and how simple changes can make a difference. Here are our four considerations to focus on for financial health:
- How much fluidity does your business have? Meaning, how much cash (or assets that can be liquidated to cash) do you have? Having a healthy cash flow readily available when you need it puts your business in a more stable position. The ongoing ability to generate cash gives you better buying power. One way to improve this is to speed up the receipt of cash from your customers.
- Analyze the status of your accounts receivable. Do you have a large number of unpaid invoices? If so, then you may want to consider an option such as factoring in order to get the money you need. You may find too much time is spent trying to be a bill collector than actually running the business at full capacity.
- Curb your credit card debt. Many businesses rely on credit cards to get through roadblocks. This isn’t always bad, but credit cards can easily lead to a large amount of debt with numerous payments to your various lenders. These payments can seriously restrict cash flow, hindering growth opportunities. In many cases, assuming a small business loan would be more beneficial in the long run. It may be beneficial to consider a lump sum small business loan to alleviate that financial burden.
- Focus on value over price. The importance of competitive pricing shouldn’t be ignored but basing prices on competitor benchmarks shouldn’t always be the norm. Focus on the customer value. It is the willingness of the customer to pay and is the sum of the combined benefits that accrue to the customer as a result of purchasing a given offering. It can be calculated and quantified as “the price of the customer’s best alternative – reference value – plus the value of whatever differentiates the offering from the alternative – differentiation value” (Nagle & Holden, 2002). In the end, that will increase your profit margin faster than cutting your prices.
Making small changes in the way you handle the financial aspect of your small business can mean the difference between success and failure. Do what you can now for a better tomorrow. And as always, if you have any questions about how small business funding can work for you, we are here to help.