Understanding your business's current financial situation
The financial position of your company is important not only for the day-to-day running of your business but also of crucial importance if you ever decide to shop around for investment capital. Your financial strength can be a clear indicator of the potential of your company and a selling point for investors. Analyzing your current financial situation means a complete evaluation of categories such as assets, liabilities, equity, expenses, revenue, and more. These elements are measured through various business-related financial formulas that allow you or your finance team to get an exact overview of your financial outlook.
Are there any ways to improve the financial position of my company?
Here are four basic starting points:
1. Financial planning is essential
If you want a clear understanding of how your business is doing financially in order to plan and strategize, a fairly thorough understanding of your financial statements is essential. Keep in mind that your financial statements are only a starting point for analysis and that you will need the assistance of a CFO to consult and help you identify any red flags and really dig in for useful trends.
For instance, if your accounts receivable is lower than in the previous budget year – it might mean that you are invoicing less – or actually collecting your money faster. So the numbers are really only the beginning. The key is to use your statements to spot trends and anomalies, and then follow these up with further investigation in order to draw a useful conclusion that can be turned into an action plan.
Really knowing the numbers can help drive the strategic direction of your company. How to think about financing expansion. How to approach global structuring for long term wealth protection. A fractional CFO like Outsourced CFO in your corner can help you navigate these important crossroads and set you on the path to financial success.
2. Make a budget and stick to it
A detailed and realistic budget is one of the most important tools for guiding your business and ensuring long-term profitability. Budgeting is defined as the process of preparing and overseeing a financial document that estimates income and outgoings for a specific period and allows you to plan your finances accordingly. It identifies your available capital, estimates your spending, and helps you predict revenue.
The team at OCFO know that budgeting and a healthy cash flow go hand in hand. Founders and management teams need to have a deep understanding of company cash flows in order to make the most of opportunities while riding out any setbacks. Not all companies have this type of expertise on tap, which is why OCFO offers cash flow and budgeting overviews and advice as part of our fractional CFO offerings. Our team can help you utilize top tools and approaches to help you forecast money in and money out. In times of excess, cash can be invested smartly. When a shortfall is on the way, you can identify it well in advance and take the necessary steps now to avoid it.
3. Save money and keep within your budget
Even if you have experts on hand to assist with budgeting and forecasting, it still pays to see where you can cut costs in order to ensure the financial health of your company. Here are seven surefire tips for getting there:
- Renegotiate with suppliers. If you have a good relationship with your suppliers, try to negotiate a lower price for your materials, or see if your account can be moved to 30 days.
- Buy in larger quantities. Bulk buying allows you to pay less per unit. But remember to factor in storage costs and ensure that you can handle the inventory.
- Improve efficiency by examining your manufacturing and internal business processes.
- Outsource expert tasks if you can’t afford to have full-time experts on the payroll. Consider reaching out to financial experts like Outsourced CFO in order to gain access to financial expertise that you might not necessarily have in-house.
- Review productivity. It might be time to call in efficiency experts to analyse your processes and ensure that your costing and pricing are correct
- Cut your electricity bill by switching off electronics when not in use, or consider renewable forms of energy, such as solar panels.
- Follow up on your invoices. Getting your payment in on time can mean money in the bank and liquidity when you need it most.
You might be surprised at how these savings add up and positively affect your business.
4. Move your business in the right financial direction with outsourcing
Knowing your company’s financial position and health is crucial for decision-making and management in general, but in today’s fast-moving world, it can be difficult to keep on top of regulatory changes as well as new technology and software. This is where you might need a CFO to guide your decision-making, but find yourself unable to justify the outlay.
Outsourcing comes to the rescue in this situation, allowing you access to crucial expertise as and when you need it, without having another permanent employee adding to overheads. With the luxury of finance-as-a-service, such as that offered by OutsourcedCFO, your executives have more time to focus on decision-making and running the business, while our CFOs optimize your finance function and move your business in the right financial direction.
By outsourcing your finance function to the right partner, your company has constant access to valuable financial information that is of high interest to your potential investors. After all, it is your job to convince them that your company is a good investment opportunity. Your financial position plays a significant role in that decision-making process and the team at Outsourced CFO are here to make this happen.
Using OCFO to improve your financial position
As an entrepreneur, it pays to do the work upfront and ask the difficult questions to ensure that you have a good overview of your current financial outlook and are in a position to improve your company finances. It’s not just about balancing the books, but about looking ahead holistically and planning for the future. For this you need an accounting partner with experience and vision, like OutsourcedCFO.