We all know the importance of health and wellness when it comes to our bodies and our minds. We take daily, monthly, and annual steps to prevent major health issues and maintain a good quality of life – from regular physician check-ups, to regular exercise, to taking vitamins, to getting rest and eating healthily. And, we know the risks – increased stress, chronic conditions and greater healthcare costs – that can result from poor lifestyle choices.
So, why not apply the same holistic and proactive approach to the financial wellness of your small business?
The 4 C’s
Maintaining the financial health of your business is critical if you want to secure optimal funding and avoid chronic issues and unexpected costs. Many businesses currently fail to obtain loans because they don’t fully understand their “fundability” which is based upon their financial health.
Fortunately, by following strategic and tactical steps to continually evaluate and improve four key financial indicators – cash flow, credit, customers, and collateral – you can do just that.
I call these indicators the 4 C’s.
If you work to improve the 4 C’s on an ongoing basis, you will always be in good shape to access more and better funding when you need it. Let’s break these down one-by-one:
Credit – Control Existing Debt
Unsurprisingly your personal credit score is a primary factor in determining the fundability of your business. From paying your bills on time to maintaining a low debt-to-credit ratio, you need to be vigilant about managing and maintaining your creditworthiness.
If your credit score is presently low don’t worry because you can take tips to fix this. Paying down existing debt to ensure a debt-to-credit ratio of 25% or less is a great start. Also, simple things like setting up automatic bill payments can also help enormously. It may take 12 to 18 months to see a significant change in your credit score so be patient.
Cash flow – Keep More Money in Your Business
Have you ever had a check bounce because you miss-timed incomings and outgoings? Banks call these Non-Sufficient Funds (“NSFs”). These “lead to several problems for you and your business including overdraft fees, unhappy creditors, and they make it very difficult for you to get a loan.”
Writing paper checks can increase the potential for timing issues because you can’t control when the payee is going to deposit that check. One way to mitigate this is to issue checks directly from your bank account. That way the funds are automatically deducted from your account meaning you have a more accurate picture of your available funds at all times.
Another tip is to ensure you’re prioritizing your bills. Certain bills are more important than others – for example payroll, rent, raw material costs, and existing loan repayments. Ensure that you cover these before anything else. “Don’t spend revenues collected on anything else, until those priority bills are paid and make due with what is left to run your business.”
And, make sure you’re reviewing all of your outgoings regularly – are you overspending on non-essentials (fancy stationery, cabs and expensive dinners) that you could cut back on?
Customers – Stabilize Collections
Obviously you want as much revenue as possible and, ideally, as many returning customers as possible. Lenders like to see consistent revenues with a growth trend before committing funding.
Think about ways to build loyalty (e.g. special discounts and free shipping) and increase revenue predictability (e.g. subscription plans). And don’t forget the simple things that make it easier to do business with you – maintaining a customer’s credit card on file or having Paypal or other electronic payment options means someone can shop efficiently while on the go.
Collateral – Build and Maintain Assets
Many businesses require commercial space from which to operate and many businesses rent that space. If your space needs some work to bring it up to your needs and standards you may be tempted to undertake some renovation work out of your own pocket and even take on debt to do so. But, wait – there’s a better way!
“All things being equal, a business that does not own real estate, but takes on a meaningful amount of debt to improve their commercial space is often viewed by prospective creditors as highly leveraged and thus less able to take on additional capital.”
Capital improvements should be the responsibility of the commercial property owner. An agreement can be made whereby you, the tenant, reimburse your landlord in part or in full over time. You can negotiate what’s called a Tenant Improvement Allowance, which may result in a rent increase however, the cost is amortized and lenders do not include tenant lease payments obligations in their debt ratio calculations.
Monitoring The 4 C’s
If you don’t pay attention to your financial wellness, it gets harder over time, and it takes longer to correct financial issues. You can risk overpaying on interest rates, damaging your personal credit score, unnecessarily depleting your personal savings, and missing out on new revenue and growth opportunities.
Start by creating a simple financial wellness dashboard, which will provide a snapshot of how you are doing in each of these critical areas. Outlines personalized improvement plan steps and targets so that you can make progress where needed. Make time to review this on a regular basis – an hour a week, or a couple of hours each month. You can build this in a simple spreadsheet – see an example of FundWell’s Financial Wellness Plan.
For more information on Fundwell, growing your small business, and crowdfunding, see:
Free 90-Day Trial Offer of FundWell’s Financial Wellness Program
FundWell is offering a 90-Day Free Trial of FundWell’s Financial Wellness Program to GoGirl Finance readers. FundWell helps you assess your financial health and put a plan in place to improve your 4 C’s. This will enable you to access more loan money at a lower interest rate. There is no obligation to continue after 90 days. E-mail to learn more and get started at: firstname.lastname@example.org
FundWell is a small business loan matching and financial wellness site that helps borrowers get the best loan they are eligible for today and improves their eligibility for more capital at lower interest rates in the future. FundWell provides borrowers with up to three lender matches for free through our national network of lenders that provide 11 different types of loan products for amounts from $500 to $2 million dollars. FundWell provides education, transparency, and assistance to help borrowers apply for loans and improve their financial health over time. Visit www.thefundwell.com to learn more and to get your loan eligibility.