The US economy continues to stabilize, driven by inflation deceleration in the past year. At 3.5% today, it is already 60% lower than the 9.1% peak in 2022.
Even so, the possibility of a slowdown must not be discounted, although a recession is unlikely. This possibility is supported by the potential delay of Fed rate cuts to prevent inflation from rebounding.
Given this, businesses must remain keen on economic changes to stay afloat. They must ensure adequate financial capacity to sustain their operations and withstand challenges. This move will help them navigate the still stormy market environment and tight competition.
In this article, we will provide some tips for entrepreneurs to protect and maintain their finances.
Always Check Your Financial Health
As an entrepreneur, you must ensure the business is financially sound. Doing so will protect your capital and all your stakeholders.
The most typical way is by checking your sales and operating costs. It is more crucial when your business offers at least two products. That way, you will determine which of your products generates the highest and lowest returns. This tracking will help you and your team find the optimal production level and pricing strategy to maximize sales and lower costs.
You also have to check your cash and cash equivalents and borrowings. They will show the capacity of your business to sustain its current production level, expand, acquire, and invest in technologies. They will also show if you must borrow again to raise capital and pay borrowings with shorter maturities.
Moreover, checking your accounts receivables, inventories, and accounts payable is essential. These are some of the most crucial accounts to assess efficiency. You will determine how long it takes to collect payments and pay for your supplies, which are already recognized as part of sales and COGS.
While your sales show your business performance, they don’t reflect if all the amount has already been collected. The same goes for your COGS.
Meanwhile, checking your inventory levels works hand-in-hand with your accounts receivables, sales, and accounts payable. You will know whether you must buy new supplies and raw materials.
These accounts may be the tip of the iceberg. However, once you understand how they work together, checking the remaining accounts in all your financial statements will be easier.
Digitize and Automate
Digitization and automation do not only apply to project management and marketing campaigns. They can also bolster the financial aspect of your business.
Digitization and automation will be the best decision you can ever make in connection to your accounts receivables, inventories, and accounts payable. Imagine not having to wake up very early and rush to your table to dig into piles of invoices for your monthly financial report. By joining the fintech revolution, everything will be as easy as 1-2-3.
This move also applies to budgeting, credit monitoring, and financial planning. It is more crucial when you aim to expand your production and build branches in other locations. You have to be more watchful of your cash flows and investment strategies. You will also have to check your existing loans and credit score if your capital is insufficient.
Thankfully, your business can use plenty of budgeting and credit monitoring apps for a low price; some are even for free.
Insure Your Business
Many CEOs are racing to multiply their finances and turn their businesses into empires. However, bankruptcy is just a recession or pandemic away. That is why you must consider getting business insurance and property & casualty (P&C) insurance. It will ensure your money is safe no matter what happens.
General insurance for your business will cover all your legal expenses and other business-related indemnification. Meanwhile, P&C insurance will pay you if a natural calamity or fire damages your properties.
Invest in the Financial Market
Business expansion is not the only way to increase your income streams. Investing a portion of your capital in the financial market can provide higher earnings.
The economy is much more manageable than in 2022 and 2023. So, the financial market is heating up and rebounding. Investing as early as now will lead to higher returns in the long run. Investing in dividend-paying stocks will be a wise move to derive more income.
Value Your Employees and Customers
Your employees and customers are the end-to-end points of your production. Keeping them satisfied and engaged can be a solid boost to your sales and operating income.
One way is by letting them be heard. Setting open-door meetings or town halls will give employees a feeling of involvement. For customers, you can conduct QBRs to assess your product’s value. They can give suggestions to improve your products, allowing you to increase their engagement, establish rapport with them, and solidify brand loyalty.
They will just take an hour or two and may seem tedious at first. However, your effort will pay off as you motivate and make them feel valued. Also, you can do all these for free, whether in person or via video call. They are much cheaper than hiring new employees and printing customer survey forms.
Takeaways
Increasing and protecting your finances is essential to help your business stay afloat. It can still be challenging since the economy is yet to recover fully. But with dedication and strategy, you can execute these smoothly. You may see your business thriving and generating more returns in the long run.
