After you’ve tackled that giant pile in the garage and removed all the weeds from the backyard, it’s time to take an even closer look at your company’s finances. Now that tax season is over and you’ve crunched the numbers from all angles, we suggest using that economic intel to prepare your business for the next year. Here are seven steps to scrubbing your financial statements.
1. Review Pricing
One obvious way to make more money as a business is to raise prices. However, it’s also important to compare your prices on a quarterly basis to prepare for seasonal changes and ensure your pricing models are the most effective. You can start this review by analyzing these factors.
- Competitor Analysis: A competitive analysis can be achieved by comparing your prices to others in the same industry. In addition to pricing, make sure to look at what kind of packages, promos and additional services they may offer.
- Compare Different Suppliers: Scan the market every so often to get a better deal on your products from various suppliers. It is also important to make sure you weigh the costs and benefits available with buying in bulk.
- Ceiling Price: The ceiling price is the highest price at which consumers will buy a product or service. Offering your services online enables you to reach a broader audience, which could increase demand allowing you to create higher ceiling prices.
- Consider Valuable Partnerships: If there are members in the community purchasing the same supplies as you, you can join forces and buy them in bulk for cheaper. Many associations provide this as a benefit, or there are often local trade groups that you can join that also provide the opportunity to take advantage of group pricing.
2. Manage Inventory
Letting your product expire on the shelf or become unavailable when a customer needs it, is a sure fire way to lose profit. Additionally, there is one often overlooked concern with inventory: having too much. Inventory that sits on the shelf isn’t generating any revenue. Try having a fire sale to clear out space for more of what does sell. Managing your inventory properly is essential to increase your cash flow. You can do this by tracking inventory automatically, prioritizing resources, realigning with industry standards and having a back-up plan for emergencies. All of these steps will help you find the right balance between inventory and sales, which can drastically increase a business’ available cash.
3. Compare Insurance Plans
These days there’s an insurance plan for everything – your health, car, home, cell phone and yes, even your pet! It may seem overwhelming, but there are cost-effective plans with the extensive coverage that can make your employees happy while keeping your budget on track. We suggest utilizing plans with a high deductible and augmenting those with an the HSA (Health Savings Account) which is a tax-advantaged medical savings account, or the HRA (Health Reimbursement Account) which is an IRS-sanctioned employer health benefit plan that reimburses employees for out-of-pocket medical expenses and individual health insurance premiums. These plans will save the company and the employee money on higher dollar monthly premium rates.
4. Learn From Previous Taxes
The biggest mistake small business owners make when it comes to taxes, is simply not communicating with their accountant enough. It’s easy to get in the habit of only calling them in the weeks before April 15, but you could be leaving a large sum of money on the table by procrastinating. Accountants not only help with taxes, but they can also pinpoint KPIs (key performance indicators), identify red flags and provide valuable recommendations for the future of your business. In addition to meeting with your accountant on a regular basis, it’s wise to keep a current year tax file of all miscellaneous documentation such as charitable donation receipts, car registration bills, real estate tax invoices, etc.
5. Go Paperless
There's a variety of new apps that make managing, translating and keeping track of documents as easy as clicking a button. Making the switch from paper to digital is a no-brainer when you see how much you save on supplies. This goes beyond paperless billing and bill pay, new cloud computing software makes it possible to find scanners to transform your receipts, documents and business cards into digital formats that works for you. In addition, electronic invoicing can help speed up the time it takes a business to get their receivables.
6. Eliminate Misfinancing
Mis-financing is defined as borrowing short-term capital to pay for long-term assets. Purchasing equipment, leasehold improvements and other fixed assets with a short-term line of credit, such as a credit card, drains the cash out of a business and reduces the amount of time the asset has to pay for itself. Correctly matching the term to the useful life of an asset increases the company’s cash flow and frees up the line of credit for seasonal working capital needs.
7. Monitor Ongoing Trends
When managing a business, it can be easy to get stuck in the day-to-day tasks and forget about the bigger picture. But it’s vital to take a step back and view your finances from the monthly, quarterly and annual perspective. Failing to do so may subject your company to the “growing broke” phenomena when your company is growing too fast and you run out of cash to pay bills in a time of rapid sales growth. Try using financial intelligence software like Finagraph, to track the financial trends in your industry and avoid this silent killer of business.