If you are a small enterprise, getting a small business loan can be a sort of a hurdle. That’s mainly because of the tight standards that are set by banks. Nonetheless, getting additional financing from outside sources is often inevitable and necessary. It’s how you start a business or make it grow bigger. Additional financing is also being used to cover payroll, inventory, and other business expenses. But to get that financing you may first need to improve your financial management.
While finding a trusted lender and applying for a business loan can be a bit tricky, it will get easier if you are more prepared. So, here are the steps to help improve your financial management that can ease out small business loans application.
1. Set up financial reports and bookkeeping
Setting up a system that makes bookkeeping a breeze must be your first step in financial management. You can use QuickBooks, FreshBooks, Sage 50 cloud, or other user-friendly bookkeeping softwares allow you to enter and organize financial data and at the same time make accurate reports.
This way, you will gain ready access to your financial reports and be able to check revenue, profit and loss, projection of cash flow, expenses and balance sheets, as well. With these accurate reports, you can have an honest view of your business standing. These reports can be set up by a bookkeeper or you can do it yourself. Regardless, you can have easy access to monthly, quarterly, or even annual reports which let you make better plans for your business.
2. Know the cash flow
It is advisable for any business to stay updated on your cash flow. This can be done by checking your bank account balance, printing a report of the cash flow that shows incoming revenue due and upcoming expenses in a specific period of time. It is ideal that the expenses or payments are less than the account balance and incoming revenue combined. Otherwise, you may have to use the business line of credit or adjust the timing of payment, whichever is possible.
3. Review business income and expenses
Another factor of an effective financial management system is to be able to include all the records of incoming revenues and the money your company spends. Your bookkeeping system can help you create this report, which you can review regularly. With this added to your system, you can get a better understanding of how much the total income is affected by the expenses.
4. Set goals that promotes profit improvement
Once you have identified your financial benchmarks, you can now start establishing profit goals. As a business, you already know that your profit increases as your total revenue increases while the overhead cost decreases. You may consider the following tips to increase profitability:
- Increasing Revenue. The profitability of your business can be improved by increasing your business revenue. Keep in mind that companies with lower profit margins are less likely to see bottom line profit improvements by increasing revenue. On the other hand, companies with higher profit margins are more likely to enjoy improved profits by doing the same. The strategy is to target a new market category that pushes higher pricing. You can either offer related products that have a higher price, hence profitability due to increased revenue.
- Decreasing COGS or Costs of Goods Sold. Another way to improve your gross profit margin is to lessen the costs involved with every company transactions. Aside from increasing revenue, this can be the most effective way to make your profit bigger, particularly in the long run. However, before doing this strategy, make sure that the quality of your product or service won’t be compromised.
- Decreasing Overhead. Another go-to way in increasing profit is to decrease the company’s operating expenses.
Identify profit percentage
Another step in improving your financial management is to determine your company’s true profit percentage. You may create reports showing your company’s gross income minus the total expenses to determine the percentage of your gross income versus your bottom-line profit. This can be done using your bookkeeping software. Once you know your business’ accurate amount of profit percentage, you can set higher profit goals and regularly check if your company meets the goals you set.
Making these small yet important financial habits can greatly improve your financial management and make application for small business loans easier. With these tips, you don’t only get higher credit standing, you also get to know more about how your business finances work, which is really a must for every business owners.