5 Tips To Improve Your Business Finances
By JD Esajian on April 19, 2019
Generating revenue is nice but growing your bottom line is the name of the game. There is nothing more frustrating in business than working hard only to be disappointed with the end profits. If too much of your capital is going to debt or other areas, you will not have the success you desire. Eventually you will become frustrated and annoyed with the process and start looking for alternatives.
How you run your business, and treat your finances is the most important thing you will do. Closing deals may seem like the benchmark, but the bottom line is always the bottom line. There is a slim margin for error in how you handle your finances. If you are savvy and know where to spend you will see a much larger share of profits. Conversely, if you are sloppy or don’t fully understand credit you will work harder with less to show for it. Here are five tips to improve your business credit and finances.
- Review Credit: The first step in improving your finances is reviewing your credit. Regardless of how frequently you use credit it is important to know exactly what is on your credit report. Even if you haven’t opened new credit in a while, you still need to know where you stand. You can bet at some point you will need to open a line of credit or explore credit options. If you have derogatory items that are pulling your score down, you need to get them removed. The longer they are on your report the more potential damage they will do to your scores. Getting negative items removed has gotten easier in recent years, but can still be a time-consuming, painful process. By constantly staying updated with your report you can deal with any issues in real time, eliminating the long drawn out process. The only way of knowing how to improve your credit, is by facing it head on and reviewing it.
- Set A Strict Budget. There are two main reasons that businesses struggle: trouble with revenue or trouble with debt. It is important to know what you are dealing with. Trouble with revenue can be fixed by simply closing more deals. This sounds easy enough but can actually be the better of two evils. The other major financial problem is dealing with debt, and to some degree spending. It is ok to use debt to help grow your business, but you better be disciplined in repaying it. You don’t need to be an economist to understand that interest repayment can cripple your business. If you used a high interest credit card to fund a deal you need to pay it off as soon as the deal closes. If not, you add a large monthly payment that needs to be accounted for. Any money that comes in will go to paying this down and before too long you need to make more just to break even. As hard as it is as times, you need to be disciplined in how you use credit and where you spend your money.
- Review monthly spending. A painful, but important, exercise is to monitor where you spend over a 30-day period. At the end of the month pour through your accounts and make a spreadsheet of where every dollar went for that period. There is a good chance you will be surprised at just how much money is wasted. There are many ways you can probably chop off at least 10% per month on your expense sheet. That savings can be used to pay down debt or reinvested in other areas of your business. If you don’t know where your money is going it is impossible to know where to make changes. Not only do you need to review your budget, but you need to commit to sticking to it. This sounds great in theory but is difficult in application.
- Spend in right areas. There is a huge difference between being thrifty and cheap. Being cheap means you look for the least expensive option and constantly put Band-Aids on problems. Being thrifty means you shop around to get the lowest price coupled with the highest quality. When trying to monitor your expenses, you need to be mindful of this. Saving a dollar today is not always the best thing for your business. You should always spend on quality and keep the big picture of your business in mind. If not all you are doing is postponing small problems until they become big ones. Additionally, you may not be maximizing your assets and will be disappointed when you decide to cash out.
- Establish a reserve fund. The unexpected happens much more than you may think in the world of real estate. Even when things are going great you should prepare for the other shoe to drop. Every investor, and every business, should have a rainy-day fund. Use this only in the case of emergency and not for everyday problems. Hopefully, you will not have to tap into this for years, but the odds are you will. Even just a small portion of your rents received, or the profits generated makes a dent. You never want to have to use high interest credit to solve a problem that having reserves would have rectified.
Real estate investing is a business and should be treated like one. The more you focus on the business of it and not just generating deals you will see a stark improvement in your bottom line.