There are numerous good reasons for running a business, including being in control, pursuing an interest, taking on a challenge, and making money. However, managing your business also comes with various risks and responsibilities, such as financial and economic ones, that can run you down.
Therefore, growing your company requires a good understanding of the common risks most businesses face. This will help you assess them and take measures to lessen their effects when they happen.
One good example is working with an invoice factoring company like Rev Capital to minimize the risks that poor cash flow poses to your business. Consistent poor cash flow can lead to the deteriorating financial health of your business.
Below are some common factors that affect a company’s financial position:
Both excessive and insufficient inventory can affect your company’s financial health. Too much inventory can pose the risk of obsolete stocks that may sometimes have to be sold below cost price to prevent further losses.
The excess stock also ties up finances you can use to run other business operations. Having insufficient capital, on the other hand, signals inadequate funding or poor planning that can affect your sales revenues.
- Working Capital
Your company’s success is greatly determined by available operational funds that allow you to pay for utilities, procure raw materials and other inputs, or pay your employees on time. Sufficient working capital allows you to meet your recurrent financial obligations with minimal strain.
- Accounts Receivable
Accounts receivable represent outstanding debt for goods or services given out on credit. And although they’re recorded as assets on the balance sheet, you can only sustain your business operations with your available funds.
Unpaid invoices pose a significant challenge to businesses by limiting available working capital, presenting trickle-down problems across the entire business. A ballooning accounts receivable statement can create a cashflow gap that can significantly derail your business growth. The same goes for accounts payable if not maintained correctly. This is where accounts receiveable and accounts payable services can help you ensure your business finances are resolved.
- Cashflow Problems
Most cashflow problems originate from clients who don’t prioritize outstanding payments or long credit periods extended by your business. Cashflow problems always hurt the financial position of any company.
Prolonged working capital challenges can stunt your business growth. Hence, you may need to take drastic measures to protect your company’s cash flow, such as turning away significant sale orders to avoid increasing unpaid invoices.
Boosting Your Finacial Position
Every company goes through a season when it needs to pump in extra funds to counter cash flow-related challenges and meet its various obligations. For instance, you might be heading to your industry’s peak season with many unpaid invoices.
Despite this, you still need to increase the resources that facilitate the production of sufficient sale items to take advantage of the busy season. Other times you may be interested in taking advantage of huge discounts suppliers offer to stock up on the raw materials used in your production processes.
Here are some ways to improve your company’s financial position:
It helps to get the right kind of funding to benefit your company during financially challenging times. When unpaid invoices are a significant source of your company’s financial instability, invoice factoring can quickly get you back on your feet again.
While waiting for your customers to pay for goods or services extended to them on credit, you can consider selling your accounts receivable to raise money. This is possible because accounts receivable are financial assets in the form of sales that haven’t been paid for in cash. You factor in your unpaid invoices when you sell them to generate cash.
Invoice factoring comes at a cost and is suitable for businesses that can’t access conventional funding but need short-term finances. Invoice factoring enables businesses to receive payments during the credit period and transfers the hassle of debt collection to the invoice factoring company.
Invoice factoring will ensure cashflow problems don’t halt your operations due to unpaid invoices. It also comes in handy when new opportunities present themselves. With invoice factoring, you never have to worry about missed opportunities when you can rapidly boost your working capital and improve your financial position.
2.Monitoring Your Financial Performance
Regular evaluation of your business performance is critical in improving your financial position. Having a good grasp of where your business stands at any point often enables sound decision-making.
For example, consistently analyzing different financial statements will help you identify the most profitable areas of the business. You can use such knowledge to grow your business lines while slowing down or eliminating stagnant and unlucrative products or services.
3.Providing Clients With Multiple Payment Options
With more clients paying for goods and services online, offering multiple payment options can increase conversion rates and boost your cash sales. In addition, multiple payment options can contribute to a growing global audience on your digital platforms. The bigger your audience, the higher the probability you can sell more.
Striving for optimum inventory levels is necessary to avoid the financial problems associated with excessive or insufficient stock. For instance, you reduce the funds available for other business functions whenever you incur higher storage charges and unnecessary insurance costs for excessive stock.
5.Investing In Advanced Technology
Modern technological solutions, including software and cloud computing,improve company processes like accounting, spend management, and data management at reduced time and cost, saving you money For example, a cloud-based system can get your financial information whenever needed. Utility bill management makes the bill payment automatically so you can focus your efforts elsewhere. Financial procedures can also be streamlined with its help.
Your company’s ability to meet short-term obligations like timely payments to suppliers and employees is critical to its survival and success. In addition, high sales volumes are essential for generating revenue to run business operations.
However, selling on credit can leave you financially disadvantaged and slow your growth prospects. Prolonged periods of insufficient working capital can leave some areas of your business vulnerable.
Nevertheless, unpaid invoices shouldn’t threaten your financial position when you can reach out to an invoice factoring company to boost your cash flow and keep your business operations running. Invoice factoring enables you to access working capital easily and is one of the ways to improve your company’s financial position.