About a third of us will make New Year’s resolutions this year and common choices will be to join a gym, lose weight, eat more healthily, learn a new skill, spend more time with loved ones, drink less alcohol or stop smoking. In reality, most New Year’s resolutions don’t last long (12 January is known as “Quitter’s Day”).
Although there’s no time like the present when it comes to stopping bad habits and starting good ones, New Year also provides business owners with the perfect opportunity to make changes, whether big or small, that boost bottom line. So, what New Year’s resolutions should you consider making for your business?
1 Keep your costs to a minimum…
Minimising costs is essential if you want to maximise your profits. Money can easily be wasted in all areas, with cost inefficiencies often building up over time. If things are quieter between Christmas and New Year, use the time to review your incomings and outgoings.
Find out what you’re buying and how much you’re paying. Are you buying things you don’t need or paying too much for things you do need? Ask your suppliers for better value, negotiate better deals or consider other suppliers. Reward your employees for their effective cost-cutting suggestions. Consider whether you’re using technology to its full cost-saving potential. Remember that savings can also be made on utilities, insurance, telecoms and broadband, so shop around for the best deals.
To avoid future overspending, set budgets in all areas and stick to them. Carry out quarterly cost reviews to prevent cost inefficiencies returning.
2 Tighten up your credit control…
Non-paying and late-paying customers create cash flow headaches, so carry out credit checks on all new customers. If possible, only grant credit when your relationship is better established and make sure they agree your credit terms in advance. Avoid granting too much credit. In some cases, you may be able to request part payment upfront when dealing with large-value orders (or staged payments for long-term contracts).
Make sure customers receive your invoices as soon as possible, because delays will affect your cash flow. Your credit control system should tell you when an invoice is paid or overdue, so you can chase late payment. Remain determined – remember – it’s money that you are owed.
3 Review your prices regularly…
Your prices should enable you to maximise your profits, while remaining sufficiently attractive to your customers. Review your pricing at least every quarter, so they remain competitive. You may be reluctant to increase your prices for fear of losing customers, but your business will become less profitable if your costs increase. Knowledge of your competitors’ prices and customers’ likely response is essential when considering whether to increase or decrease your prices.
4 Work with cash flow forecasts…
More than 320,000 businesses fail in the UK each year (source: ONS) and running out of cash is usually the reason. Many business owners fail to address cash flow problems, because their financial records (ie their accounts/books) are not up to date or because they don’t work with cash flow forecasts.
Creating reliable cash flow forecasts, based on realistic monthly cost and sales estimates/assumptions, allows you to identify periods when your business risks running out of cash. After implanting this, you will then be able to take steps to avert a cash flow crisis – before it’s too late. You might need to cut costs or arrange finance to get you through a short-term cash flow problem but doing nothing isn’t an option.
5 Research available cash flow solutions…
Certain types of finance provide far more cost-effective solutions to short-term cash flow issues. If your business provides credit, invoice factoring can be a cash flow solution. This is where a bank or other provider buys your unpaid invoices for a percentage of the amount due. They collect payment and pay you the balance, less their fees. You get your cash sooner, which can ease your cash flow, although you make less profit.
Invoice discounting is another option. This is where a bank or other provider advances money to you against the value of your unpaid invoices, but your business is still responsible for chasing payment. If your business regularly experiences serious cash flow problems, there could be more fundamental problems, in which case seeking expert guidance is advised.
6 Update your business plan regularly…
Many people create a business plan when starting their business, only to leave it to gather dust somewhere. In other cases, businesses create or update a business plan when seeking funding or finance. However, having a well-produced, regularly updated business plan can keep you focused on your long-term development strategy and key business goals, so can help keep your business on track.
Another key New Year’s resolution could be to update your business plan and commit to keeping it updated. Looking at your business plan regularly allows you to remind yourself of what you’re trying to achieve and look at key numbers to judge how well your business is performing.
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