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Many companies wait until a crisis occurs before they start focusing on improving financial management. Often, then, may be too late. Further time can assess the strengths and weaknesses of your business and financial management systems, saving time and effort. It may also help to increase profits, and at the end of the day is what it is.
Here are five strategies for building a solid financial base and creating value for your company.
1. Develop a system of financial control
The first departure was safe with a monitoring system to ensure consistency in processes and procedures. A control system is designed to prevent and detect errors in their daily activities. For example, it is a standard way to deal with their demands, liabilities, and inventory? If there are no standard guidelines to follow, it is likely that no system of control.
2. Have daily access to your account information
Make sure you can access your account information every day is precious to manage your money effectively. For most banks that offer Internet access at a reasonable price, there is no reason not to have instant access to account information.
3. components of cash management
The emphasis on the management of its cash three main components: receivables, payables and inventory.
Consider the various components:
Credits
Make sure your system of credit and collection functions efficiently. Excess Investment in receivables is a greater need to borrow more money to avoid a gap in cash flow. This means that if more money than you are probably carrying too much debt and has a direct cost to bear to make interest payments on additional debt. Although internal equity by refinancing, there are indirect costs, the opportunity cost of capital for use elsewhere, including the following expanded its inventory to increase sales, reduce debt or to earn interest on bank deposits.
period debt collection defines the relationship with the process of cash flow. Each month, you have the collection period and comparison with prior periods and results to the industry average. Significant differences should be investigated.
Your credit policy may make your cash flow and profits. And credit conditions may increase sales and profits, but requires the decision to offer more liberal conditions, an estimate of the compromise between the cost of the largest investment of the assets and net profits in the volume of higher sales. Remember that credit enhancement may be less creditworthy customers lead to increased bad debt. However, you can increase the use of price with respect to credit terms more liberal.
By developing a credit policy, the following questions:
Check the financial health of customers before offering credit. Consider getting money in the first order.
Do not make the bill too generous terms.
Interest paid to customers who pay late.
Discount for prompt payment.
If you are submitted, they must be sufficiently attractive to entice customers to make offers. It can also serve as early warning if a customer does not stop, or suddenly stop taking, so you may want to consider further that the loan could be a sign of financial difficulties.
Do not wait any longer to act than 30 days for a late payment, before we do, we must minimize the company is exposed to bad debts. Put in dollar terms, if you have a bad debt write-downs of $ 1000 and a profit margin of 10%, you must create a supplement of € 10,000, to do that again.
Inventory
First, remember that expensive to make because of transport costs such as warehousing and inventory of claims to insurance. Namely, reduced inventory investment, which represents a major improvement compared to baseline, a similar reduction in the form of loans, since they also reduce transportation costs.
As its applications, it is important to situate the analysis of the monthly average number of days to complete. Change from previous month and the average of the industry and examine the difference or.
A periodic inventory is a basic requirement, the products are packaged, should be studied.
A sales forecast is essential, but you do not have the information needed to manage stock control.
Its assets in shares of the target must be equal to the normal investment in sales and a core of safety stock (for example, if a new order is delayed further action you need in your hand) over a certain amount for each expected sales growth.
You can determine the equation of economic quantity: SQRT (2SO/CP), where
SQRT = square root
S = annual sales expected
O = fixed cost per order
C = cost of the annual inventory, in% of the purchase price of products
P = purchase price of products
Note that the above equation to try to minimize storage costs, answering the question of how much and how often the inventory control. It is not perfect, does not change the equation for volume discounts and it is assumed that demand is constant. However, it can be a tool, which allows decisions.
The following 10 questions, you can use to check the inventory:
Do you have a sales forecast? Would you compare the actual sales figures, and make weather forecasts for the next convention?
You know what the objects represent 80% of sales? These must be treated with caution.
How long do you stock?
What about inventory?
How much inventory to order? Place your order more just to save money?
Do you know the cost of maintaining your inventory?
Depends providers only one or two?
How often are tested for warehouse and makeup?
Do you have a yardstick to determine what inventory is obsolete, and when and how to get rid of it?
If you provide an inventory of information system for monitoring the data needed?
Accounts Payable
Even if you stretch your debts, if possible, and attractive discounts for buyers and suppliers should be transferred as often as possible when conditions are sufficiently attractive.
Make sure your debts are regularly checked – the magazine – and that their payment system is functioning smoothly.
As for receivables and inventory, with a monthly analysis of commitments and in comparison to prior periods and industry averages. No substantive change or difference must be considered.
provider understand your business, if you have a situation where you need to extend the debt. You need a plan to deal with situations that may have an unexpected increase in liabilities.
You must then measured at regular intervals to ensure you get the best value.
4. Budget
E “, you must plan for growth and the need to anticipate problems. You must establish a budget. In addition to completing a budget for sales, you also have a budget for a disaster, such as sales fell by half . The advantage is simple, it requires you to wonder how we are able, the company responsible for sticking to the situation. It also identifies areas where you can save money immediately, and cash flow free. It’s like having an emergency plan, just for what to do if a disaster occurs, but it is much easier to concentrate when you have a crisis at hand.
5. Develop a strong relationship with the bank
Attention to developing relations with the bank. Keep in your business. If it is a difficult time much easier to take your bank to get on board if they understand your business. Contrary to popular belief, banks are not necessarily rely only ship in distress. Are you willing to work with small businesses in tough times, and to gain their trust, it is much easier to have more confidence in yourself and your business. To do so, is that in the negotiations and their relevant financial information.
Use your bank as a resource for cash management. There are products which generate cash flow or a system that can be created to increase their tax rising interest rates can. But you still need to ensure they are profitable.
Cash Management Solutions, accompany you to manage business and loan
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