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Controlling Your Finances and Paying Your Debts
A company that can manage its resources effectively has a better chance of succeeding. This is one of the tenets of the business world, and this is why resource management needs to be a primary concern for new business owners looking to build a successful company.
What Is Resource Management?
Resource management covers how a business goes about dealing with the expense of its day-to-day operations. It includes:
- How your company pays its debts
- How your company collects what it is owed
- How your company manages its inventory
- How your company delivers its service or products to customers
- How your company delivers its customer service and support
How a business manages its resources is one of the prime factors that today’s lenders use when determining business loan approvals, so strong resource management should be a key component in your overall business strategy if you want your business to grow.
How to Get Insights from Your Financial Statements
Business owners can use their financial statements, both historical and projected, to form measurable ratios that can help them learn how their resources were managed in the past. This insight is important to help business owners discern whether or not they managed their resources effectively, and to help them create better ways of accomplishing their financial goals.
Data commonly used to gain this valuable insight include:
- Working capital (how much money is required to run the business on a daily basis)
- Debt to worth ratio of the company (including any equity investments)
- The rate of delivery of the product or service from the business to the customer
- The rate at which your company pays its debt obligations
- The rate at which your company collects on the debt that it is owed
These very same variables are what lenders use when determining whether or not to approve a loan. You can access most of this data from your financial statements, and your company’s credit profile.
Seven Tips for Better Resource Management
- Set a reasonable maximum spending limit on your monthly budget
- Have a list of secondary suppliers available for the principle products and/or essential equipment your business uses on a daily basis
- Avoid overbuying items that you only use occasionally
- Buy regularly used products in bulk when on sale
- Pay your suppliers on time every month to keep your business relationships and credit rating strong
- Review your business’s cash flow statements monthly to help ensure accuracy
- Review the time difference between the times when you have to use working capital to cover operational costs, and when payment for your invoices comes in, to calculate your business’s cash conversion cycle
By using accurate data and valuable insight to help you achieve effective resource management, your business will be in a better financial position to make the most out of its external funding, while helping to keep your bank statements in the black and out of the red.
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[Featured image courtesy of Tim Boelaars]