10 Steps to Build a Financially Strong Business
The success of your business is strongly tied to financial stability. As your company grows, cash flow will become a make or break issue. This is particularly true for product design companies who encounter unique expenses.
We recommend a phased-approach to building financial strength, and the following step-by-step guide may help your business to alleviate or avoid the most common cash flow problems…
Confront Your Financial Reality
1. Build cash savings to equate one month of operating expenses. These are the expenses needed to operate your business such as rent, office expenses, utilities, payroll, etc. Operating expenses do not include inventory purchases and other cost of goods sold.
2. Set aside cash for taxes on a monthly or quarterly basis. Don’t be caught by surprise when taxes are due.
3. Diagnose your profitability and cash flow weaknesses. Why are you not as profitable as you want to be? How could cash flow improve?
4. Set financial goals. What are your goals for gross income, gross profit (dollars and percentage) and net income (dollars and percentage)?
5. Create a financial forecast. Growing businesses should have at least a three month forecast, and forecasts should be evaluated/updated monthly.
Create a Financial Safety Net
6. If you have a line of credit, pay it back to zero.
7. Build your cash savings to equate three months of operating expenses.
Grow and Enjoy Financial Success
8. Use existing cash flow for capital expenditures and growth capital. Don’t rely on bank loans to grow your business.
9. Pay down your remaining debt on an accelerated schedule. Debt is a drag on positive cash flow.
10. Reward the owners of the business with cash. Wealth is created by after tax profits.
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