How To Modify Your Business Financial Management Strategy?

The current economic slowdown has brought in several financial challenges to businesses in India. According to data, 71.31% of the companies have experienced shrinkage in their cash flow due to the situation. It resulted in deferred payments, a slowdown in business operations, etc. 

These issues primarily cropped up because the pandemic took everyone by surprise, and most businesses were not/underprepared to deal with the onslaught. However, after a year, the situation is different. 

Businesses have adapted to the changing norms, although not fully. And with another Covid-19 wave on the cards, enterprises are grappling anew with the last years’ predicament. To this end, strong company fundamentals and modifying financial management strategies is essential. 

The following points dive into the intricacies of this to help businesspersons surf through these trying times easily –

• Managing Cash Flow

Reduced cash flow is a common concern that affects the operational activities of businesses. Hence, managing it is the first essential step to bridge any monetary gap. A prevalent issue that affects cash flow is default payments. 

A business owner must collect payments on time from their clients. It can help in timely repayments to creditors and increases trustworthiness in the market.  It is also imperative to keep a tab on accounts payable to optimise business cash flow. 

Management of cash flow also involves auditing fixed and variable expenses along with actual revenues. This gives an in-depth understanding of what is the real financial status of a business. Accordingly, an entrepreneur can create a financial management strategy to meet cash crunches.

• Checking The Business Model

To keep up with constant market fluctuations, an entrepreneur must reassess their current business model. This gives a clear insight into where a business stands premised on revenue, working capital, etc. In addition, revising a business model helps examine the impacts of outstanding debts, sales, and current credit cycles. 

• Long-term Financial Planning

Post assessment of the business model, it is time to create a robust financial plan to meet unforeseen economic situations. That’s because it isn’t easy to conclude how long this financial uncertainty will last. It can last 3 months or to the next year. However, knowing it may have eased the process.

For example, if it continues for another 3 months, an instant freeze on the variable expenses like hiring would have solved the problem. But, conversely, if it extends over nine months, a business owner may have had to reconsider an entire business strategy. 

But since it stands inconclusive at this juncture, entrepreneurs must prepare for the long haul. It may include reducing variable and fixed costs and emphasise only essentials to survive. Moreover, entrepreneurs must clearly communicate with stakeholders and employees to avoid any additional disruption.

• Obtain Appropriate Capital

For smooth business functioning, raising capital is of the utmost importance. Moreover, business owners must improve their chances of receiving faster credit approval amid the current economic crisis. 

A solid business model and improved business credit history are a few conditions to keep in mind to this end. In addition, an entrepreneur may turn to existing investors, with whom they have a cordial relationship, for quick funding to expedite the process. 

To maintain a steady cash flow and avoid default payments to vendors, a business owner can opt for invoice discounting. With this, one can release funding tied up in unpaid but approved invoices. Additionally, most providers facilitate an online application and disbursal process, which makes obtaining the loan easier.

• Maintain A Bookkeeping Practice 

Bookkeeping helps track the financial performance of an organisation. It includes maintaining records of sales, revenues, and other business costs. Accurate recording of transactions is vital for filing taxation as well.

Some business owners also don’t keep separate business and personal accounts.  Mixing it can cause difficulty while bookkeeping. Hence, if you still own a bank account that includes your personal and business savings, make it a point to open a separate account for each.

• Stock Control

In financial management strategy, effective monitoring of inventory is important. That way, you can remain apprised of the stock’s health at any point in time and ensure that your capital is not on hold unnecessarily. An effective strategy in this regard is to sell off stocks that are not in demand at discounted rates and utilising the proceeds to fill up on supplies that are availed widely. 

• Protect Your Asset

A business owner must apply for an asset protection strategy to safeguard the assets from creditor’s claims during financial trouble. Effective usage of asset protection strategy will keep your business assets intact to assist you in starting a new business in times of financial disputes. 

Additionally, allocating funds for an emergency is also necessary to tackle market fluctuations. 

Spells of financial instability are inevitable for every business, although small enterprises are more vulnerable to these challenges. In that scenario, one can seek expert guidance for advice on a personalised financial management strategy for small business.