As the new year approaches, your resolutions can fade just as quickly as they’re made. While starting with good intentions is important, long-term success is all about building sustainable habits. Just like any athlete training for peak performance, business owners must be prepared for the long haul. In this blog, we offer practical tips on how small and medium enterprises (SMEs) can maintain healthy financial habits and build endurance for lasting success.
Work lean
It’s no secret that successful businesses need to be efficient with their resources. While growth can tempt you to overextend, maintaining a lean operation helps ensure long-term sustainability.
At the start of the year, you should be developing either cash, operating, capital or sales budgets based on the business activities you want to control. Divide your budgets into daily, weekly, monthly and yearly plans so that you can achieve your periodic goals efficiently. As a habit, you’ll then need to consistently track variances throughout the year and adjust your budgets accordingly. You may see the need to embrace digital tools to streamline processes or negotiate with suppliers for cost savings and better terms. While you’re at it, evaluate workflows and inventory management and implement energy-efficient practices and technologies to lower utility expenses. There are tons of great budgeting apps that can automate certain tasks and provide insights into your spending habits so that you can continue to work lean. And of course, we at Vital Addition can help you develop a comprehensive financial plan and provide guidance on your long-term budgeting strategies.
Build endurance
For SMEs, managing cash flow is the equivalent of endurance-building long runs. We can’t say it enough – cash flow is the lifeblood of any business, and keeping it healthy requires constant attention. A cash flow statement helps you track where your business’s money is coming from and see where most of it is being spent. Even profitable businesses experience cash flow problems and the last thing you’d want is for your business to cramp up when it hits a steep hill. So, carefully and regularly use your cash flow statements to monitor your inflows and outflows and ensure that you always have enough reserves to cover expenses.
Developing a culture of saving will also do well for business longevity. By automating savings each month as a business expense, you ensure that the business has additional reserves for purchasing major assets or surviving challenging times. You’d want to have at least 3 – 6 months of operating expenses set aside as a safe cushion.
Maintain your status
As your business expands, it may be necessary to secure a small loan to fund purchases. Not all debt is bad, and some actually are beneficial to your business success. Managing this debt, however, is the crux of the matter. Prioritise paying off high-interest loans and negotiate favourable terms with creditors. Keep a good reputation and you’ll improve your credit rating and the chance of lower interest rates in the future.
Monitor progress
It’s extremely important that you conduct financial reviews and monitor your progress over time, making adjustments if it’s not on track. Each quarter, review key financial metrics—such as revenue, expenses, profit margins, and debt levels—and assess your progress toward financial goals. Frequent reviews help identify rising expenses, or declining sales before they become major problems. It would also help ensure that employees are accountable for their financial responsibilities and that resources are being used efficiently. If something is off, adjust your training plan and get back on track.
Partner up
It’s always best for SMEs to have support in decision making. Especially when the goal is far ahead and the stakes are high, business owners may be tempted to wander off the path of financial propriety. In these times, it’s good to have a partner who can keep your eyes on the prize.
Our outsourced teams have helped multiple business owners avoid impulse spending and maintain clear boundaries between their business and personal accounts. As a partner, our goal is to provide you with sound accounting and taxation solutions so that your business can achieve its personal best. We’ve worked with entrepreneurs and SMEs across various disciplines including FinTech, SaaS, Hospitality and Real Estate and we’re just as proud as they are when they achieve exponential growth.
So as the new financial year approaches, be sure to set your financial goals, but also be very mindful about maintaining these habits that can keep you from hitting the wall. Remember, the race doesn’t end when you cross one finish line; it’s about continually setting new goals, refining strategies, and staying committed to the journey.