How To Improve Financial Health of Small Businesses?
May 4, 2022
Outsourced Accounting and Finance Services
Small businesses or SMEs play a major role in the UK’s booming economy, by accounting for around 5.5 million businesses (in 2021), 60% of the total employment, and around 50% of the overall turnover in the UK private sector, highlighting SMEs’ role in driving innovation in the UK market. Indicators such as liquidity, solvency, operating efficiency, and profitability help small businesses to maintain their financial health. For sustained growth, financial accounting advisory services and outsourced accounting services play a critical role in keeping small businesses agile.
20% of the small businesses in the UK fail in the first year, and 60% of them fail within three years. Largely, the weak value proposition, insufficient cash, heavy dependency on specific customers, poor management and performance analytics lead to a business shutdown. Engaging in financial planning services at early stages helps in creating resilience, and avoiding common pitfalls.
However, unique approaches and initiatives can be adapted to monitor and enhance the financial health of small businesses.
Steps To Improve Financial Health
Going Back to the Basics
There is always a supervision requirement pertaining to the entire business to maintain an accurate track of information and databases, including customers, sales, accounts, inventory, etc. Precise record management will help in effectively retrieving and disposing of records, reducing litigation risks, cutting costs, saving time, solving cash flow issues, and expediting the decision-making process, which supports in analysing, and ultimately improving the business’ financial health. Leveraging outsourced bookkeeping services can ensure data consistency, and reduce manual error risks.
Creating Purposeful Financial Reports
It is essential to prioritise the preparation of financial reports on revenue, cash flow, expenses, net profit, and the ability to meet financial obligations (short-term and long-term) that will help in assessing the financial situation, and making better decisions going ahead. To compute profitability, the comprehensive strategic snapshots and operation metrics will provide a major advantage in presenting detailed performance analysis to internal and external stakeholders. This is where accounting and bookkeeping services provide the structural edge for small businesses.
Figuring Out Business Ratios
Starting by working on your key figures and ratios is crucial. It allows to put things into perspective, into the right context, and get a ballpark figure around the numbers. The business ratios, mainly liquidity, solvency, and inventory-to-sales ratios, also come in handy while calculating budget and financial goals. To optimise this, many SMEs are outsourcing accounting services to enhance insights, and maintain consistent reporting practices.
Preparing Financial Forecasting and Budgeting
Being a small business, direction should align with a path of creating market value, developing forward-looking insights, and eventually planning global expansion. Preparing forecasts and budgets are also mandatory when approaching banks and other lending institutions. Estimating the revenues, expenses, profits, and other numbers can help in creating a baseline for comparison of the actual figures against the budgeted ones. Enlisting financial planning services can support realistic forecasting and actionable business insights.
Managing Timely Payment Processes
Cash flow management must be a priority in every business, as they help to manage bill payments, and the completion of tasks on time. Financial software can send out automatic reminders for timely payments that will benefit in maintaining a positive credit score, eventually constructively impacting fundraising, growth, and market expansion of the business. An in-place automated invoicing system also eliminates manual processes and errors, and maintains an archive of the payments made. Additionally, transparency in payroll services pricing can support more predictable budgeting.
See how IMS Decimal boosts financial control, eliminating payment delays, and enhancing cash flow management.
Optimising Workforce
Employee engagement breeds a productive and efficient workforce, fostering a healthy work environment. Keep an eye on employees to get a pulse of the organisation’s ‘mood’, ask for their feedback, and work on resolving the pain areas – this will make them feel a valued part of the business’s growth journey. Happy, satisfied employees will in turn reduce recruitment costs too.Handling Inventory Management and Costs
Managing inventory costs can help in maintaining a good inventory turnover ratio to plan and forecast the necessities. Keep on comparing past sales performance and quantity of products to decide the future inventory requirements, which can also be helpful in searching for alternate, cost-effective service providers. Integrating financial accounting advisory services can also help SMEs make informed cost-cutting decisions without sacrificing service delivery.
Devising Marketing Strategies and Campaigns
Brainstorming and bringing in unique and disruptive marketing ideas to run a business can help to create a buzz around the brand. Marketing campaigns need not be exorbitantly priced. Think about optimising social media platforms to advertise the brand for a minimal cost, or sometimes even for free.
How Can IMS Decimal Help Your Business?
IMS Decimal are experts at managing financial and accounting tasks that can improve and maintain the financial health of small businesses. Gain qualified finance and accounting professionals and end-to-end experts to work on streamlining the business’s monetary activities.
Whether looking for outsourced accounting services, financial planning services, or a complete accounting and bookkeeping services package, IMS Decimal delivers tailored support to keep businesses agile and compliant.
Get in touch today with IMS Decimal to discover how our outsourced accounting and financial back-office services can keep a business’s financial health in check.
