For you and your family, spring is a time to sweep out the cobwebs from the garage and clear out any unused or unwanted items from the attic and cellar. It’s the same for your small or medium-sized business (SMB). Spring is an ideal time to review your financial matters and get your SMB’s financial house in shape.
Financial statements should be reviewed regularly (monthly, quarterly), but if you aren’t in the habit of doing so, spring is a great time to get started. Here are two key statements to review now:
- Your balance sheet, which is a snapshot in time of your business’ assets and liabilities. It can be used as an indicator of financial trouble if the ratio of your liabilities to assets is greater than one to one. If you find yourself in this situation, it’s time to take immediate action. And if you’re looking for additional funding, your balance sheet is one of the financial statements used by investors and lenders to make their decisions on whether to help you out.
- Your income statement, also called profit and loss (P&E) statement, is another key financial document you should review. In simple terms, it shows the revenue coming in and what expenses are going out, and whether you’re profitable or experiencing a loss. This financial statement helps you make decisions about running your business (e.g., pricing, expansion, cutting overhead). And, like the balance sheet, you need it when seeking funding.
Many SMB owners routinely renew their basic policies year after year, without giving thought to whether they have the appropriate coverage at the most favorable cost. Be sure you address these concerns:
- Does your policy match your business size? The extent of coverage in your existing policy may not reflect your business growth and may leave you underinsured if you experience a loss.
- Do you have all of the types of coverage you need? Disaster can strike at any time from many different sources. Work with a knowledgeable insurance agent to review potential risks. For example, if your business is within a flood zone, you may need a separate flood insurance policy. If a storm or other occurrence befalls you (remember hurricane season begins June 1) and forces you to close for a time, consider carrying business continuation coverage to pay your overhead and see you through. With the growing cyber threats, decide whether you want cyberliability insurance. This coverage (the extent of which varies by policy) protects you in case you’re hacked, experience ransomware, or need data recovery.
- Have you adopted business practices to minimize liability exposure? For example, do you have an anti-sexual harassment policy in place to protect your employees and avoid possible legal action against your company? Have you adopted safety measures to minimize workers’ compensation claims, which can keep down the cost of your premiums.
With interest rates on the rise (the Federal Reserve hinted that there may be as many as three rate hikes in 2018), you should review your existing line of credit and the interest rates on business credit cards. Here are some actions to consider:
- Pay down outstanding debt bearing adjustable interest before rates rise to the extent that you can.
- Obtain different credit cards best suited to your business. Consider not only interest rates if you typically run a balance, but using credit cards for other purposes (e.g., cash rewards, travel benefits).
In order to grow, you need access to capital. This depends not only on your current financial situation, as reflected in the financial statements discussed earlier, but also credit scores for owners as well as for businesses. What to do?
- Check your personal FICO score to make sure there aren’t any errors. You can do an annual free credit check. If you detect anything that isn’t yours (an account, a lawsuit), you can rectify the error through the credit reporting company that made the listing.
- Monitor your business credit rating through such services as Experian, NAV, and CreditSignal. These services offer a free check.
- Improve your credit ratings. If your FICO score is low, be proactive in improving it. Fundera suggests that you have a 700 score to obtain the most favorable terms and rates. Like your personal score, you should take steps to continually improve your business credit rating.
Spring may also be a great time to make other business decisions, such as hiring new employees, buying new equipment and machinery, or expanding operations to an additional location. All of these activities can be facilitated by having your financial matters in good order.
Want more finance tips and insights from the SMB Experts? See what they had to say in our recent tweetchat, Financial Intelligence for Business Owners.