How have you been sleeping?
During times of doubt, uncertainty and rapid change, business owners across all sectors often feel extreme concern when it comes to the financial health and stability of their business. This can easily translate into irritability and restless nights. It can even put stress on family relationships.
Now is a good time to look at the financial side of your business using tools, systems and processes, hopefully finding inspiration for improvements.
Reach out to us to begin a conversation and for an evaluation of the health of your business. We’re here to serve you.
Eagle Corporate Advisors
GPS: Financial – Honing Your Financial Coping Skills
It may start with a small, nagging voice in the back of your mind. You might feel an ongoing tightness in your shoulders and neck. Both symptoms — and many more — are instinctive signals from your subconscious that something’s not right.
How can you know when your cash flow warrants concern? How do you discover where problems lie and determine what you can do about them?
A number of warning signs can help you successfully identify financial issues while they are still small — before they become larger problems. It is important to take these signs seriously instead of letting your passion for what you do lead to denial. If you’re experiencing some of the issues, it’s time to take action now.
- Increasing employee turnover
- Increasing client turnover
- Discounting to create sales
- Paying bills late
- Receiving payments late
- Reaching borrowing limits
- Robbing “Peter” to pay “Paul
- Straying away from your core business in the name of diversification
Too often business owners do not see the connection between these issues and cash flow. Even experienced business owners sometimes forget there are three primary sources to obtain cash for their businesses. Cash can be obtained through:
- Equity – Early cash from equity is often obtained from family, friends and fools. Cash can be obtained by selling a portion of your ownership in the company or bringing on additional owners by diluting your ownership through others. As the business develops, angel investors, venture capital, and private equity can be a source of cash. Each of these parties will seek some form of return on their investment in the company and may have other expectations.
- Debt – Cash can be obtained by borrowing against the value of some or all the business assets, which could include items like accounts receivables, equipment, or real estate. The money borrowed from lenders will need to be repaid over time with interest. Each lender will have varying requirements to ensure timely payment, which may include guaranties.
- Profits – Cash from profits is the primary financial reason why you own and operate your own business and is necessary to be sustainable. Profits are the net result after collecting revenues from your products and services after paying for materials, labor, and other operating costs. The more profitable a business becomes the greater the ability it has to satisfy the expectations of the owners, lenders, employees, and customers.
Although there are three options to increase cash to solve cash flow problems, the best long-term approach is to increase cash from profits. There are three high level approaches you can take to improve the profitability of your business:
- Reduce Expenses – The first, easiest and most frequently used approach to increasing profits is to cut costs. Although managing expenditures and making sure rising costs do not get out of hand is wise; it is impossible to eliminate all spending without shutting down the business since you will always have some level of material and labor expenses among other needed items to properly run the business.
- Increase Income – The next approach is to increase topline revenue by raising prices or increasing customers. Raising prices can be effective with some research to ensure you are maximizing the amount the market will pay for your products and services, which is heavily dependent on the customer’s perception of value obtained. There is a difference between raising prices and increasing sales volume, so be careful to not just focus on selling more at the wrong price.
- Increase Productivity & Efficiency – This third and critical approach to increasing profitability is the least understood and takes the most effort to implement effectively. The results can become the most beneficial and sustainable. Productivity is related to the level of output or results compared to level of input, time or dollars invested to achieve the desired goal.
Easier said than done? Yes.
It takes a concerted effort to review where you may want to obtain additional cash from – equity, debt, or increased profitability – and then pursuing such course. If equity and debt have already been utilized or not selected, diving into improving profitability through reducing expenses, increasing income, or increasing productivity is the next task. And it does take hard work.
The good news is that, while you’re making these short-term improvements, you’re also adding to the value of your business.
If it’s been years since you’ve sought the guidance of a trusted mentor to ensure you’re headed toward what’s important in the long run, it’s time to determine if you need to get back on course.
Eagle Corporate Advisors works diligently with you to improve and transform all fundamental areas of your business. We work to increase your bottom line to enhance the value of your business, along with its appeal to potential buyers, partners and investors.
Our in-depth approach will help you face change head on to make informed business decisions while keeping your future goals at the forefront.
We are Your Value Advisors.