Being competitive in today’s tough economic environment is all about maximising the efficiency of your business’ assets, and always using them the best way possible to move your business forward. That means maintaining a constant review process of your company’s financial health as well as its relationships with insurance companies, lenders, and consultants.
Reviewing allows you to continuously update every aspect of your business to ensure that your assets, employees, and company structure are always working together as perfectly as possible to achieve a common goal. Since most startups and smaller businesses have their hands full managing their day-to-day operations, important opportunities can end up being overlooked or put off indefinitely.
Taking the time to audit your financials can free up capital and time that will make it easier to further optimise your operations down the road. This, in turn, can give you the edge you need to face down obstacles and stiff competition that would otherwise be impossible to confront.
What to Review
While the most relevant things to analyse and monitor differ depending on your industry and your specific company, there are some important things that you’ll definitely need to consider when you start the review process, regardless of what type of business you’re running, or how large that business is.
What insurances are you currently purchasing, and what do they cover? Are any of these redundant, or irrelevant? If yes, it might be time to eliminate or modify those insurance plans, or to shop around for better policies. Conversely, you may want to purchase additional insurance to cover any new assets or liabilities that aren’t already protected.
Bank and Lending Finances
Analyse your lines of credit and outstanding loans. If you aren’t using most of your secured line of credit, but are still paying fees on it, you should reduce it to free up any securities that are unnecessarily locked up in that facility. For both regular loans and lines of credit, it’s a good idea to keep an eye on your business’ credit rating and current interest rates so that you can take advantage of any opportunities to refinance or renegotiate them. That way you can reduce the cost of both existing and future credit.
As your business’ financial situation improves, you’ll also be able to improve the terms of your credit, and get access to more and better financing options.
Managing your banking relationships well also means keeping track of and using securities as effectively as possible. Any assets that you can free up can be used to secure further capital to develop your operations as needed. This way you can make sure that the value of your assets is contributing to the business’ future rather than just sitting idly on the sidelines.
We’ve already addressed unnecessary interest payments, but there are a lot of costs to examine when it comes to making sure that your business is running as efficiently as possible. Since there are so many, it’s best to start with the largest expenditures and then to work your way down to maximise results.
Cutting costs can mean layoffs and restructuring, but includes much more than that. Negotiating better rates with suppliers, replacing expensive proprietary software with open source programs, or relocating to a more affordable space are all viable options for reducing expenditures. Additionally this would be the time to evaluate third party advisors or consultants, and determine whether the support they provide offsets their cost.
Key Income Drivers
Go over your income streams and review your service or production operations. In this case, again, it’s good to focus on large income streams first, but you shouldn’t ignore smaller ones either. This process involves not only minimising costs, but also monitoring the market price of your product or service, and ensuring that your own pricing is competitive without selling you short.
There is some overlap with monitoring expenditures here in that these revenue streams need to be correlated to the expenses required to operate them. Some services that your business offers might not generate enough revenue to pay for themselves. In these cases radical changes may need to be made to the service, prices may need to be adjusted, or it may need to be cut entirely.
Get a Second Opinion
Many business owners feel that they are already doing a fairly good job at managing these issues on a day-to-day basis, but that doesn’t mean that everything is actually fine. It’s often best to engage the services of an unbiased third party to help you with this process.
Important business decisions are very often influenced by office politics and the self interest of workers or departments involved in the process. A third party can look at your business more objectively, and make recommendations that a business owner or manager would be unlikely to hear from their own staff.
Finding and addressing these issues is an important process that can have immense impact on your business’ viability for future growth. Maintaining long-term efficiency in this way doesn’t just help to increase profits, it gives you options to reinvest in your business to develop new and better services.
Does your business have an innovative approach to managing its financial efficiency?
If you need help with your finances or short-term loans, talk to Fifo Capital, the business finance experts.