Small businesses or SMEs play a major role in the UK's booming economy, by accounting for around a 5.5 million businesses (in 2021), 60% of the total employment, and around 50% of the overall turnover in the UK private sector, clearly depicting that SMEs inspire innovation in the UK market. Indicators like liquidity, solvency, operating efficiency, and profitability help small businesses to maintain their financial health.
According to research, 20% of the small businesses in the UK fail in the first year, and 60% of them fail within three years. Largely, the lack of value proposition, lack of cash, heavy dependency on specific customers, poor management and performance analytics lead to a business shutdown.
However, unique approaches and initiatives can be adapted to monitor and enhance the financial health of your small businesses.
There's always a supervision requirement pertaining to the entire business to maintain an accurate track of information and databases, like customers, sales, accounts, inventory, etc. Precise record management will help you to effectively retrieve and dispose of records, reduce litigation risks, cut costs, save time, solve cash flow issues, and expedite the decision-making process, which helps in analysing and ultimately improving the business’ financial health.
It is essential to be aware of and invest time in preparing financial reports on revenue, cash flow, expenses, net profit, and the ability to meet financial obligations (short-term and long-term) that will help you to assess the financial situation, and make 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.
Starting by working on your key figures and ratios is crucial. It allows you to put things into perspective, into the right context, and get a ballpark figure around your numbers. The business ratios, mainly liquidity, solvency, and inventory-to-sales ratios, also come in handy while calculating your budget and financial goals.
Being a small business, it is vital that the way forward should converge with a path of creating market value, crafting future predictions, 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 you in creating a baseline for comparison of the actual figures against the budgeted ones.
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 you 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.
Employee engagement breeds a productive and efficient workforce, fostering a healthy work environment. Keep an eye on your 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’ growth journey. Happy, satisfied employees will in turn reduce your recruitment costs too.
Managing inventory costs can help you 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.
Brainstorming and bringing in unique and disruptive marketing ideas to run a business can help you to create a buzz around your brand. Marketing campaigns need not be exorbitantly priced. Think about optimising social media platforms to advertise your brand for a minimal cost or sometimes even for free.
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 your business’ monetary activities.
Get in touch today with IMS Decimal to discover how our outsourced accounting and financial services can keep your business’ financial health in check.
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