Whether good or bad, change is inevitable when running a business. The difference between businesses that survive hard economic times and those that are thrown out of business lies in their financial flexibility. Likewise, a business financial flexibility determines the ability to achieve growth by jumping on opportunities quickly or watching unexpected business opportunities pass by and remaining stagnant. For long-term business success, having the ability to access the finances needed to respond to sudden business changes is crucial. Businesses with a strong footing in financial flexibility enjoy increased adaptability, improved decision-making, reduced volatility and ultimately increased sustainability and growth. That being said, here are five ways that you can build financial flexibility for your business.
Operate with a budget
The first step towards achieving a healthy financial state for your business is creating a budget. Moreover, with a budget in place, you are likely to manage your finances better to achieve increased financial flexibility. Ideally, a budget is like a roadmap for your business finances that tell each coin where to go, which is crucial in restricting expenditure. Besides this, a good budget identifies available capital and forecasts incoming revenue. Hence, working with a budget helps businesses control spending and increase revenue to meet current commitments and objectives as well as ensure that resources are available for future projects and opportunities that drive business growth.
Find ways to reduce expenditure
Building cash reserves is one of the traditional ways of ensuring financial flexibility. With some money stacked up somewhere, you are likely to have enough to cater for your business operating expenses in case of a sudden crisis. Building cash reserves starts with using your profits wisely. Moreover, finding ways to reduce your expenditure plays a significant role in this regard.
Take a careful look at your current expenses and ask yourself if there are changes that you could make to eliminate some expenses. For instance, you don’t have to increase salaries or offer bonuses every other month. Doing it sparingly can give your profits a breathing space. Another example, if you are just starting out, you can consider renting an office space to save the cost of building one. The good news is that you can find office spaces in Los Angeles, New York, Chicago, Houston and every other city you might think of in the US.
Multiply your revenue streams
Besides reducing expenditure, diversifying your revenue streams is another way to build cash reserves to achieve financial flexibility. Moreover, relying on a single source of revenue can be quite risky for a business. In case of a crisis and the revenue stream is affected, the chances of survival are minimal.
There are multiple ways that you can use to diversify your income streams. For instance, you can venture into new markets or demographics, create new products or services, start selling online and much more. If one fails, you don’t have to go to the drawing board as the rest can provide the flexibility that you need to bounce back.
Work on improving your borrowing ability
Financial flexibility is having the ability to access funding to respond to sudden changes in the business arena. Having an ability to borrow whenever you need financing for your business gives the financial flexibility that you require to grow your business. However, you don’t just get there. You need to work on improving your credit worthiness to financial services providers. The best way to do this is to ensure that you are repaying debt and loans in time. Moreover, be strategic about your borrowing. Pilling up unnecessary debt can become overwhelming and impede your ability to repay.
Employ more ways of increasing your working capital
Besides building cash reserves, maintaining a good borrowing ability and reducing expenditure, there are other ways to increase your working capital and hence your financial flexibility. They include:
Finance or hire operating equipment rather than buying
Shorten operating cycle
Use trade credit insurance to weather your business from customers’ bad debts
Opportunities and crises are common in business. What differentiates you is the ability to take advantage of the opportunities and overcome the crisis. Moreover, financial flexibility puts you in a good position to respond in a timely manner. Finding ways to reduce expenses and increase revenue helps attain the flexibility needed. Additionally, creating a budget and maintaining an ability to access financing is important.