In our previous blog post, we described why the health of your balance sheet is important and how you can use it to assess the financial health of your business. In this blog post, we are giving you four tips that you can use to improve the balance of your business’s balance sheet. Stronger balance sheet can help your business grow stronger. Also helping your business to have a better chance in obtaining credit facility.
1. Optimise your accounts receivables collection
The first step to improving your balance sheet is optimising your accounts receivable. You can reduce the payment terms on your invoices if you think your debtors will be ok with having to pay your invoices more quickly. If, however, your debtors are already paying their invoices after the due date, you’re better off working on ensuring more customers pay you on time.
Some strategies you might use to accomplish this include making it easier for debtors to pay your invoices, introducing or enforcing late payment penalties, or providing discounts or other incentives that encourage prompt payment. And there’s always the option of selling your outstanding invoices if you need to access to the cash tied up in them.
2. Identify and sell unproductive assets
It’s important that the value of your assets outweighs the value of your liabilities. If, however, you’ve got assets that aren’t generating a good return on your investment then you can liquidate them. Doing so will free up cash that you can then invest in more productive assets or use to grow your business.
Calculating your business’s debt ratio is a good way of determining whether your business is using its assets effectively. If your debt ratio is higher than you would like but you need access to all the assets you currently own and so can’t liquidate any, consider leasing assets or outsourcing production. This is a particularly effective strategy for assets that date quickly
3. Pay close attention to inventory control
The more inventory you hold, the more risk there is that your inventory will be damaged or become obsolete. In addition, the more inventory you hold, the more of your capital is tied-up in not-yet-productive assets instead of being used to generate cash flow or improve your business’s financial stability. As such, carefully monitoring how much inventory you have on hand and optimising your processes so that you obtain inventory closer to when you’re ready to sell it is a good way to strengthen your balance sheet.
4. Reduce staffing costs
High-quality staff are vital to the health of any business. But retaining staff is expensive and staffing costs can easily make up a substantial part of your business’s operating expenditure. If there are ways you can reduce staffing costs without sacrificing your current business capabilities, your balance sheet will get a real boost.
This doesn’t mean cutting salaries or eliminating staff benefits. It’s more about maximising your use of existing staff capabilities, improving staff efficiency and ensuring you don’t hire staff you don’t need. For instance, don’t hire staff in anticipation of a future boom. Instead, hire staff gradually as your business grows and the need arises. Alternatively, if you have seasonal fluctuations in staffing requirements or need staff for specific projects, consider hiring the required staff on contract or seek out high-quality freelancers that have the skills you need.
Connecting the dots to alternative financing
Maintaining a healthy balance sheet can be tricky. You have to constantly monitor your balance sheet and adjust processes that negatively affect it when required. The above tips are all great ways of helping to ensure your balance sheet is strong and healthy but some of those strategies take a little bit of time to produce positive changes in a balance sheet. If you find yourself in a position where you need quick access to cash, alternative finance could be an excellent accompaniment to these strategies.