6 Steps To Optimize Your Business Financing

1. Assess Your Current Financial Situation

Your first step is figuring out where your business is starting from financially. This means asking questions like:

• Are your balance sheets healthy?
• Do you have access to enough cash flow when you need it?
• How much debt do you have?
• Is your business profitable?

You’ll likely need to analyze your financial statements to answer these. They can help you figure out current levels of liquidity, your debt-to-equity ratio, and other factors that could be impacting the financial health of your company.

You should also consider your assets and liabilities. These don’t always impact daily or monthly cash flow, but they are an important part of the overall financial health of your company. You may have assets like property, inventory, and equipment and liabilities like accounts payable, loans, and other debts.

Combine these financial health indicators and you’ll get a good sense of where your business is at today. This will inform the goals you set in step two.

2. Set Clear Financial Goals

Once you understand your financial situation, you can start setting goals to improve it. These need to be specific and measurable so that you can track your progress toward them over time and make adjustments when necessary. For example, you might set a goal to increase revenue by 10% over the next six months. Or maybe you want to reduce operating expenses by 5% over the same period.

Once you have your goals, you can start looking at the steps you’ll need to take to reach them. For example, if you’re trying to increase revenue by 10%, you might need to boost production, find new customers, or launch a new product.

Don’t forget to track your progress over time. If you try an initiative and it doesn’t work, you’ll want to adjust quickly to keep any losses to a minimum. You could also be pleasantly surprised by your strategy for finance in a business plan. For example, if a new financial strategy helps you overshoot your revenue targets, that could be a sign to invest more heavily in the tactic.

3. Explore Financing Options

Your company might need more funding to pursue its financial goals. When you don’t have enough internal cash flow, business financing can be a solution. This could mean taking out a one-time loan, opening a business line of credit, or even pursuing alternative methods like crowdfunding and business grants.

Companies use financing for many reasons, including:

• Covering month-to-month business expenses
• Investing more in marketing
• Buying new inventory
• Expanding product lines
• Loans for new businesses

When considering your financing options, make sure you have a justified business reason for any debt burden you accept. You should also have a reasonable plan to pay off the debt before you sign any business funding paperwork.

4. Improve Your Business Credit Score

If you want to take advantage of financing opportunities,  a strong business credit score will help you do it. Even if you don’t need to borrow any money now, it’s worth working on your company credit so you can get the funds you may need in the future.

Your business credit score is based on:

• Outstanding balances
• Payment history
• Credit utilization ratio
• Years in business
• Company size

You can improve your business credit by paying off old debts, making your current payments on time, and gaining more years of experience. As you work on these factors, online and traditional lenders should let you borrow increasing amounts at more competitive interest rates.

5. Optimize Cash Flow Management

Now you’re ready to start working on cash flow management. This is the practice of tracking and controlling your company’s cash inflows and outflows. The goal is to make sure that you have enough to cover standard monthly payments and unexpected expenses when they arise.

A good cash flow management plan starts with cash flow forecasting. This involves predicting your company’s inflows and outflows over a specific period — say, a year. Doing this in advance helps you understand when you may need extra funding early so that you can be better prepared.

You can use the financial data from the previous year and future payment schedule information when forecasting your cash flow. This will help you forecast future revenue and expenses accurately. You can present that information to online lenders to increase your chances of securing the funds you need.

6. Utilize Financial Tools and Resources

Finally, make sure that your business is taking advantage of modern financial tools and resources. It’s never been easier to access the knowledge and support services your company needs to thrive.

For example, you might use accounting software instead of doing your books by hand. You could spend less than $100 per month and save a ton of time and energy. There are tools available to help with many aspects of small business finance, including:

• Tax preparation
• Payroll management
• Inventory tracking
• Financial planning
• And most other business financial processes

As you consider which tools and resources are right for you, don’t neglect the importance of choosing the right banking partner. The institution you choose may be able to help you with financing options, the loan application process, or even fixing bad business credit. It’s better to have a bank you can rely on as you continue working on your finance and business plans.