10 Strategies for Business Finance Optimization

One of the indicators of the company’s strength is through its business financial optimization. With this being in control, the company is able to pay employees’ salaries on time, acquire inputs from suppliers, honor commitments made and carry out marketing strategies. Here are 10 strategies for new or existing businesses to strategize their business finance optimization.

Seek Advice from Expert

Nothing beats talking to an accountant or business adviser about your company’s finances. They may be able to help you find other ways to improve your cash flow. In a win-win situation, you can save some cost if you seek professional advice from family or friends (since it’s free of charge).

 Seeking advice from the experts should be done prior to starting the business, to plan and foresee all your finances problems beforehand. They may suggest options for getting funding internally or to apply for loans with the bank.

 

Evaluate your Historical Spending and Revenue

Ever heard of the saying, those who fail to learn from history are doomed to repeat it? The same goes with financial management. It’s very important to keep track closely of your historical and current expenses.

Financial statements are historical. Based on the numbers of previous balance sheets, it gives you the idea whether your business failed, succeeded or improved in certain areas. It acts as a key indicator to see whether your business is financially stable in the last quarters or years.

From there, you can set new goals and benchmarks toward increasing profitability.

Check the market projections

Market fluctuations directly influence the financial results of your company, either by changes in the stock exchange or in the habits of your customers. This is why you should never stop projecting the future of your industry. In addition to optimizing your financial management, you will be able to evaluate your brand and how your products or services can improve.

Being able to identify seasonality and other variations of demand over time helps to better understand the consumer’s buying behavior and which items most affect their purchase decision, allowing the application of action plans for the benefit of your company.

Understand your Cash flow

Cash is king and cash reserve is even more essential. Nothing can escape the control of your company’s financial activity. For instance, mistakes like forgetting to charge or pay suppliers could happen if accounts payable and accounts receivable are not aligned.

Adopt methods to make your company’s financial management more fluid. Create positions of trust that can carry out the cash outflow. With that in place, the company will not easily have issues misuse of funds.

‍Set a Budget & Stick to It

If tracking historical budgets simply is not enough, ensure you have a concrete budget and stick to it.

A budget helps you:

• Set guidelines to manage your spend
• Understand where you have key financial dependencies and predict what you’d need to continue to fund your operations
• Make wise financial decisions to meet your business goals
• Stay on track to maximize your bottom line

As a small business owner especially, you need to be aware of what gross profits and operational expenses currently are and what they will become. That way, a responsible planner can minimize all deductions from the top line to maximize the ultimate bottom line net profits.

‍How Automation and Artificial Intelligence (AI) can Help

New tools and techniques can leverage insights from both internal and external factors to help predict where the business is going. But there’s a lot of data that needs to be analyzed, so the more you can use intelligent automation, bots and AI to pull out key trends and insights, the better off you’ll be.

Automation is critical. A business lacks the ability to quickly react to change without a proper forecasting process supported by automation and technology. Your cost optimization strategy can be much more agile by having a forecasting process that adapts to what’s happening.

Build your profit and loss (P&L)

A key component of your financial statements is your profit and loss( P&L), also known as the income statement.

These statements act as a summary of your income and expenses, updating you whether your business was profitable or operating at a loss in that given month. Generally, your P&L statement will cover:

• Revenue (sales)
• Cost of goods sold (COGS)
• Gross profit (revenue minus COGS)
• Expenses
• Net profit (gross profit minus expenses)

These numbers will help you clearly see the costs of doing business and the steps needed to push for continual success and improvement.

Proactively Track your Spending

A good business owner will have an organized and transparent spending for easy reference and audit purposes. Why do you need to track your spending?

• Real-time visibility over spend data – Know who is spending what, where, and how much in a moment.
• ‍Empowering managers to oversee their team’s spend – Managers can keep tabs on their team’s spending habits as they occur. These figures can be compared against your budget and P&L sheets to gauge your financial situation.
• ‍Customizable view of spend – Don’t wait for the end of the quarter to see how much you’ve already spent. Powerful tools allow you to take a topline view of your company’s spend or zoom into a single user or transaction.

Creating value, rather than destroying value

At the beginning of pandemic, the first reaction was to reduce costs rather than optimizing costs. Then, businesses went into survival mode. Post pandemic, some businesses cut their expenses to the point where they’re ridding themselves of some of the foundational requirements for running a business. It may help them survive in the short-term, it doesn’t leave them in a sustainable position going forward.

For example, as a retailer shifted from in-store sales to digital channels to survive the pandemic, they may have focused on minimizing shipping costs rather than maintaining customer satisfaction. It’s important to understand the entire value equation when looking at cutting costs.

Understanding the Future of Business

Business owners or finance leaders should be looking into the desired future state of the business when looking at cost optimization initiatives. They look at how the business has changed over time and how they’re going to reposition investments.

Businesses need the ability to predict future trends, understand the impacts on their business model and adjust accordingly as more information becomes available.

These strategies act as guidelines for business owners to strategize their business finance optimization. With the proper planning and executing, optimization will only happen with persistent and consistent effort over time.

Need more ideas & insights to grow your business, read WhyQ blog now.