No matter how buoyant the current market is, you cannot afford to rest on your laurels. If you don’t protect your finances, your cash flow could end up in jeopardy. When a business runs out of cash, it is serious. No money means you can’t settle accounts with suppliers, pay wages, or finance business development plans. In short, your future operations could be damaged beyond repair and the business might even go under.
Most businesses fail because cash flow dries up. As many as 90% of businesses go to the wall in the first five years because they run out of cash. Fortunately, there are several ways you can protect your business financially and in this article, we are going to examine three of them.
Build a Healthy Savings Account
Always prepare for a rainy day. No matter how successful the business is right now, market conditions might change or something unexpected could happen. It pays to plan ahead, and a healthy savings account is a fundamental part of protecting your business’s future finances.
Too many business owners pocket the profits when business is booming and then panic when cash flow dries up and the bills begin to accumulate. Always channel some of your profits into a savings account when funds allow. It is sensible to open an easy access business savings account that runs alongside your business current account. Make regular transfers and move the account to take advantage of the best interest rates currently available.
The more money you have stashed away in a savings account, the less damaging an unexpected tax bill from HMRC will be.
Sensible Borrowing Solutions
Most businesses have to borrow money at one time or another. This is not an issue, but it still pays to scrutinise your borrowing before signing on the dotted line. Firstly, do you really need the money? Unless a capital injection is needed, don’t borrow money, as you will incur interest charges. Secondly, don’t borrow from the first lender who offers you a loan or credit facility. Business borrowing is a competitive market, so unless you have poor credit, there are always better deals to be had.
Hedging finance solutions are a useful tool for savvy businesses owners. You can protect yourself from rising interest rates and fix funding costs. If you would like to learn more about hedging finance, speak to an experienced advisor who can outline the options available to your business.
Insurance is there to protect us from anything life throws at us. Homeowners buy house insurance to ensure they don’t lose everything if a property burns down or floods. In fact, if you own a home or even rent one, you would be insane not to buy insurance. As a business owner, there are numerous insurance policies available to you. You can protect your business from customers who don’t pay, insure a key person so the business doesn’t fall apart if that person can no longer work for whatever reason, or insure the premises to protect against fire, flood, or burglary. You can even insure against catastrophic data loss, which in the age of technology and hackers, is a sensible decision to make if your business deals with sensitive customer data.
Insurance should never be an afterthought. It is vital that you set up essential insurance policies from day one, so speak to an insurance broker before you open for business.
There are, of course, other ways to protect your business financially. These include implementing a cast-iron credit control process and not relying on a small number of customers for your income.