5 Simple Tips to Improve Finances of Business
For a businessmen, there is never a NO for an easy answer. That’s why it is recommended to have the same attitude when it comes to managing the finances. It doesn’t matter if you’re applying for credit cards, line of credit or a loan for your business; all financial positions can be improved.
Here are the 5 tips to help improve finances of the business:
1. Limit your negative balances
One of the points that most affects the lender’s decision is whether your account has had negative balances. Having a day (or days) with negative balances shows the lender that your cash flow is not enough to cover all of your expenses. Although having a negative balance cannot be avoided, do your best to avoid being in this situation.
Solution: Regularly review your account and analyze all your frequent weekly and monthly expenses. With this, you will know exactly how much cash you will need in your account to cover the business expenses. It will also help you to identify unnecessary expenses that you can cut.
2. Increase cash flow frequency
Although the amount of your total income is the most important factor, the frequency of your company’s cash flow is also critical. You can make a lot of money a month but if you get paid very infrequently this will affect your free cash flow. Having an infrequent cash flow worries lenders which increases the financing costs.
For example: If you are only paid at the end of the month and all your expenses occur at the beginning, you would have a cash deficit for most of the month.
Solution: To solve this problem you have 2 options:
Get more customers: By having more customers you would have more monthly deposits which would increase your cash flow. The problem is that getting more customers is not so easy and also requires additional expenses for the company.
Change the frequency of incoming payment: Instead of charging your customers once a month, you offer discounts if they pay you weekly or more frequently. This solution would help you improve your cash flow without having to get more customers.
3. Analyze and fix your credit
In case of business loan, monthly and annual income is the most important factor, but your personal credit also influences. The problem is that because you are so close to the business, lenders also want to understand the owner’s personal finances. Your credit doesn’t have to be perfect, but the higher it is, the better the terms you apply to.
Solution: Check your credit for free through tools online and understand exactly what is affecting your credit history. These are the 5 factors that can be affected:
Payment History: This is the most important factor. Make sure you have no unpaid dues or collections in your name.
Accounts in your name: The more accounts you have that are up to date, the better you can show that you have control of finances. It is critical to check your credit to verify that all accounts in your name are really yours.
Errors: About 79% of records contain errors that can lower your score. Make sure everything in your record is correct.
Credit age: The longer you have credit, the more stable you are and the higher your score.
Number of reviews: Try not to have too many “strong reviews” as they can lower your score. Applications with “soft checks” are better because they don’t affect your score.
This is the reason experts recommend checking your score frequently and fixing the credit as soon as possible if any errors are found.
4. Always use a business account
This is very basic. If you have a business you should have a separate bank account for the business. By using personal account for business, you will have to face tax problems and at the same time ruining your business credit history.
Example: Your business has been open for 3 years and earns $200,000 a year and your income is deposited into your PERSONAL account. In this case, a lender would think that your business has not earned anything for 3 years and taxmen may see it as you are trying to evade taxes.
5. Don’t shy to ask
This is the most obvious and the most effective advice. Do you want an interest reduction? Ask for it. Do you want a longer term? Ask for it. Do you want less or more loan amount? It doesn’t matter, just ask! Don’t shy.
Solution: Most individuals accept the lenders’ offer as is. Remember that normally the agents you talk to earn a commission for closing the deal. This helps you because the agents have an incentive for you to take the loan. Take advantage of this opportunity and ask what else they can do to convince you to take the next step with them.