A Business is always vulnerable to financial crises and losses. Small business enterprises usually have limited financial budget and most of them run on marginal profits or even at no profit no loss situations. Financial stability is very crucial for the longer and smooth survival of your business. Though no matter what is the size of a business, achieving financial stability is a must but it is of more concern for the SMEs as the bigger companies even have some financial backup to balance their crises whereas SMEs lack that backup at large. Some of the ways through which you may assure financial stability of your business is as follows:
- Calculate the profit margin: In order to ensure financial stability, try to decide the profit margin effectively. Decide the price of your products or services by keeping in mind that the price should cover your expenses and marginal profits. When your expenses and profits are being covered by the product’s price, the chance of getting into financial crises get reduced.
- Keep a check on cash flow: Keep a complete check on the cash flow of your business. Be sure that you have enough inflow of cash to meet your expenses. Your income should be able to cover up the overall expenditure of your business. Even if you are taking some credit or loan from bank or any other sources for a particular order or requirement, make a complete plan regarding how you are going to pay back that credit.
- Develop a financial plan: The first and foremost thing that you should do as an entrepreneur to achieve financial stability is to develop a financial plan. Decide the financial objectives that your business need to achieve over a period of time. The financial plan helps in managing the business’s income and expenditure in the best possible manner. A well defined and effective financial plan results in the economical growth of the business and hence ensures financial stability.
- Get conscious about your client list, do not depend upon one or two accounts: In order to get secure from financial crisis, it is better check your client list. Be sure that your business do not depends on only one or two big accounts. As these bigger accounts will be the major contributors to your business’s income and losing of any such client will hit your financial structure hard. Either you can get some medium or small accounts that can ensure enough inflow of cash even if some bigger clients left or you can put efforts to retain your bigger customers. In order to retain major clients you have to:
- Ensure quality and timely deliveries
- Collect client’s feedback and work accordingly
- Try add new features in your products and services
- Ensure timely collection of payments : Your business should get payments from the clients on time. It is necessary because then only you can pay back your expenses and credits on time. Delay in payments can result in financial crisis and instability. Be very particular about the payment terms and conditions and state it to the client before finalizing any deal.
- Pay taxes on time: Each business is liable to some kind of government taxes. Financial stability can be achieved only by paying taxes on time. If you will ignore tax deadlines, you may have to pay higher fines and taxes later on which can effect the economy of your business very hard. Try to pay all the taxes and related revenues on time and feel free from any such sudden expenses.
- Select the right funding source: Business needs funding and credits every now and then , but selecting the right funding source is very important to ensure financial stability. Most of the SMEs relay on personal credit sources like that from friends and family for the funding of their business. But it is better to depend upon professional funding sources, like bank and other similar sources, then the personal one’s because the pay back time of personal findings is subjected to variety of factors which can result to financial crises. For example, when you take loan from a bank, the bank gives you a fixed date on which you have to pay back the credits. So, you can plan your expenditure accordingly. But if you have taken credit from one of your friend and some financial crises occur to your friend , he may ask for his money there and then . This will lead your business to financial risks.
Financial stability can be achieved by following the above mention tips. Be very conscious about the financial prospective of your business to ensure longer survival of your company. A financially stable business can take up new business challenges and can achieve higher success and growth.