You have undoubtedly heard a lot of talk about financial stability as the term gets bandied about a lot. But, do you know what it means and, more importantly, how you can ensure the stability of your own business?
Generally speaking, a financially stable business can survive a loss of a significant customer or team member, a considerable drop in sales, or other monetary problems that would be the end for other companies. The business will, of course, feel the consequences, but will be able to move forward instead of shutting down. In other words, financial stability is what makes or breaks a business.
This article describes six ways of making your business more financially stable, which should be the goal of every business.
1. Build Customer Loyalty
Having a loyal customer base is a great way to ensure you don’t go out of business even if you experience financial difficulties.
A great way to go about it is to focus on making your customers happy because this will make them more likely to remain loyal to the brand.
Data proves this point because 78% of customers state they continue to buy from a company that offers excellent customer service, even if it makes a mistake.
Investing in your customers pays off. Clients who are satisfied with how you do business and treat them will not abandon you as soon as you’re imperfect, which will help to support your business.
On top of offering excellent customer support, you can make your customers happy by providing the ability to make recurring payments. This payment method allows you to repeatedly take money directly from your customer’s account, saving them from having to remember and organise payment.
It might not seem logical, but studies show that 76% of consumers think an easy payment process is an important reason for them to remain loyal to a brand.
So, think about offering recurring payments. It will make things easier for your customers but also guarantee that you’ll collect your recurring revenue when you would expect to receive it.
Most customers are familiar with these types of payments, for example Netflix and Sky collect recurring payments this way and many people pay for their insurance and council tax like this.
The best part about recurring payments it is that you know you can count on receiving this revenue every week or month, depending on what you arranged with your customers.
Monitor your outstanding invoices
A significant aspect of being financially stable is knowing your debtors and creditors and ensuring that you pay your bills and collect those owing to you in a timely manner.
If you don’t know who owes you money, you can’t chase outstanding payments. Without this knowledge you may be bleeding money without realizing it.
And, if you’re still managing your invoices manually or on paper, you will have a hard time keeping on top of them.
You can hire people to keep track of your invoices and payments, however, you’ll spend a lot of time and resources hiring, training, and paying employees to do something that accounting software can easily do for you.
All accounting software will give you a clear overview of invoices: paid, pending and unpaid, which will help you monitor your cashflow. Accounting software can also send automated payment reminders until the customers pay.
The point of tracking your payments is to understand your cash flow.
Even though automated reminders work, they don’t guarantee payment, sometimes you’re more likely to get paid on time if you offer an incentive. In other words, you can offer a discount for your customers to motivate them to pay you early or before the due date.
For example, change the payment terms to ‘2/10 Net 30’. This means that if the customer pays the invoice within 10 days they get a 2% discount, if not they must pay the full amount before it falls due at 30 days.
If you do decide to offer a discount then make sure that you explain clearly the terms and possible discounts to avoid confusion.
The goal is to make your invoicing as straightforward as possible to increase your chances of getting paid faster.
3. Maintain Bulletproof Financial Records
For your business to be financially stable, you need to have all your financial documents in order.
When you have a clear overview of your finances, you understand where your money is coming from and where it goes.
Having a written record of all your business’s earnings and expenditures is essential if you are going to spot inconsistencies or identify habits you can change to maximize your earnings or lower your spending.
Plus, you need to be able to tell whether you’re making progress towards your financial goals or not.
Accurate financial documents will also help you calculate taxes such as VAT and corporation tax. Without records, you’re risking incorrect tax calculations, which could lead to a fine from HMRC.
You can hire a bookkeeper to manually maintain your records or opt for software that helps track all your expenses and payments.
Leverage Technology
Technology can help you keep track of your business details and remain financially stable. Sadly, many small businesses simply aren’t making the most of the available digital tools that could improve their financial stability.
One of the ways you can improve your financial stability is to offer digital payments. Many people use contactless or chip and PIN payment methods for day-to-day purchases and it is forecast that digital payments will make up more than half of all of e-commerce payments in 2023. The popularity of credit and debit cards is expected to go down by around 5 % and 2%, respectively this year, increasing the advantage of digital payments over other payment methods.
Your customers are used to and expect to make payments digitally, so make sure that you can accommodate them.
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But the benefits of joining our NoLimits business community don’t stop there. By becoming part of our community, you’ll have the opportunity to connect with other business owners, share insights and ideas, and build valuable relationships that will help your business thrive. Don’t miss out on this amazing opportunity to supercharge your business and join us today!
5. Keep Debt Under Control
Keep your business debt under control to help your business stay afloat. Most small businesses fail due to cash-flow problems, so knowing what cash is available to you and being able to match that to your expenses and direct costs is critical.
Many businesses have come out the Covid pandemic with lockdown loans to pay off, or they borrowed money for expansion.
Make a plan to start paying off that debt since you never know when a rainy day is around the corner, which could result in you having to borrow even more.
Ideally you should have a safety net, such as an open line of credit for just that event and, if possible, start to build up financial reserves within the business. If you can, start saving now if you don’t want to get into debt the next time you go through a rocky financial period.
6. Be Prepared for Slow Periods
Another key to financial stability is being able to withstand periods with little to no income. Many businesses are seasonal and earn most of their revenue at a specific time of year. Outside that period, they have fewer customers and earn less.
This will reduce their cash-flow considerably, however the overheads in the business may well be constant. To avoid issues with your cashflow, here are some strategies to deal with seasonality.
First, make sure that you keep back some of your revenue, so you have enough for the next few months, regardless of whether the business is doing well or not. Don’t take cash out of the business in the first month that you earn a lot more than expected. Instead, save this money for the slow season because it’s highly likely you will need it.
Secondly, you can find other ways to save money during slow periods, such as cutting back on ordering stock and decreasing the number of working hours, if necessary.
Also, a budget helps! Make a budget for the whole year and anticipate how much cash you need to save for the slack periods and what overheads can be reduced. Don’t take money out of the business unless you have enough left to cover your budgeted costs.
In Conclusion
If you don’t want to be one of the many businesses that end up closing due to financial instability, you need to start fixing your finances before problems hit.
Businesses that control their payments and debts, keep good financial records, and provide excellent customer service are on a great path. However, if you pair that with automating your processes using technology, you’re well on the way to financial stability.
By Justin Charlton-Jones
Join the NoLimits Business Community
Are you a business owner looking to take your business to the next level? Join our innovative community of like-minded professionals and gain access to a wealth of valuable resources, including a community portal to chat with other business owners, ebooks, business development software, and growth events that will transform the way you do business. Best of all, these resources are completely free and will be available to you forever.
But the benefits of joining our NoLimits business community don’t stop there. By becoming part of our community, you’ll have the opportunity to connect with other business owners, share insights and ideas, and build valuable relationships that will help your business thrive. Don’t miss out on this amazing opportunity to supercharge your business and join us today!