4 Signs Your Business is Financially Stable

If this is the first time you have owned a business you have likely asked yourself many times, is this normal? We may ask other business owners, friends, or send questions in Facebook groups but it is always difficult to know whether what we're experiencing is normal.

One common area business owner may feel lost is with finances. So it is common for us to ask the question, are we financially stable? Should we be farther along? Am I spending too much money?

Many of us may feel we need to be conservative with our finances after the pandemic. There are others who also may feel that in order to make money you need to spend money...maybe a lot of money.

No matter how you do finances in your business, making sure your business is financially stable is just part of being a good business owner.

In this article we will discuss some signs reassuring you that your business is financially stable. Let's get into it.

Profit

If your business is consistently turning a profit then this is an apparent sign you are financially stable. However if your profit fluctuates frequently, this may show an area that requires more attention.

Is your profit fluctuating because of inconsistent marketing? Maybe it has been difficult to assess due to changes in the economy.

It is also important to consider those in your industry and whether fluctuations in sales or profit is common. If this applies to you, financial stability pertaining to profit is going to look different for you.

If your business has never turned a profit then this is a very clear sign your business is not financially stable.

Successful Forecasting

One of the big value ads that accountants bring is being able to forecast revenue and expenses. We're able to look into the future and help decide what sort of revenue we can expect and what kind of expenses will occur.

When done successfully this can provide a lot of information to business owners as they plan for the future. If a forecast shows that a business will be in the red or suffer issues with cash, business owners can make decisions to adjust course.

This is easier said than done and can be a challenge for many business owners. Especially for new business owners because these new businesses often do not have enough financial data to make forecasts.

However, if a business does have enough financial information to make forecasts and finds that the forecasts are repeatedly incorrect this may be a sign of financial instability. Not only are we unable to anticipate the market but we seem to have little control over our finances.

Stable Savings

Savings includes an emergency fund and cash on hand for making investments and business decisions. An emergency fund is going to be essential to any business. To set up an emergency fund, we generally recommend businesses have three months worth of expenses in their account.
A savings account can also help prepare a business for its next big step. If a business is considering hiring an additional employee, researching and developing a new product, or purchasing raw materials, it is important we have some cash to begin the project.

If a business is purchasing everything on credit it could be a sign of extremely efficient cash flow management skills or it could be a sign of poorly managed finances.

While establishing a savings account is important for emergencies and for planning big investments, it is equally important to make sure your savings account is not unnecessarily inflated. Savings accounts with large amounts of cash sitting and not working for the business is an asset wasted.

It is a delicate balance between having enough cash on hand and using cash appropriately to grow your business.

Cash Flow

Cash flow is not often talked about amongst business owners but it is a problem many can face. Cash flow is the process of making sure accounts receivable are collected on time, expenses are paid on time, and funds are comfortably taken care of. It is the balance of cash so that you are not falling behind on payments nor waiting for cash to hit the bank.

It may sound easy but cash flow can come as an unexpected issue. For example, let's say a business breaks even every month. No profit and no debt either. 

If an unexpected expense were to occur or sales were to take a dip, the business owner now has a major challenge. They would need to keep the delicate balance between the income coming in and expenses being paid on time. 

They may have to wait to pay for expenses until the next check clears. It is like operating paycheck-to-paycheck. This sort of management can make it extremely difficult to grow a business, withstand hard times, or find some mental peace. 

Sometimes the solution to solving your cash flow problems is not in decreasing expenses or increasing income. It could be something like a change to policy. Imposing late fees for example.

Being a first-time business owner can provide plenty of surprises. One way to confidently level up your business is to work with an experienced partner. To begin working with an accountant who can help you grow your business click the button below.f itself. It always does.