7 financial management tips for SMEs

7 financial management tips for SMEs you need to know about

Financial management is the ability to manage your company's resources correctly. Beyond what you sell, it is essential that you manage what the company owns because this has a positive impact on its management.

The post-industrial company has to make selling a priority, of course, but in today's competitive environment and with razor-thin margins, finance-related issues are crucial. Having a good cash flow or increased financing possibilities will give you an additional advantage, for example.

There are a number of tips that can help you improve your management. The most relevant aspects are as follows:

1. Being clear on metrics

The metrics you use to manage your company's financial assets must be useful, clear and easy to implement. Most importantly, in the financial sphere, it is knowing how much you sell, your customers, the returns per customer, your cash flow, your ROI, debt and benefits.

In short, all these data will help you to get a true picture of the company's financial status. Selecting the right metrics is also a way to avoid wasting time with irrelevant information.

2. Be strict with payments to suppliers

Payments to suppliers must always be treated as a priority, for several reasons. Firstly, because this is the way to avoid problems with stocks and not compromise your flows. And last but not least, because it will be easier for you to negotiate price reductions if you deliver.

Therefore, meeting your payments to suppliers in a timely manner should be non-negotiable. This is something that will bring benefits in the long run. One of the factors that determine the solvency of a company is precisely payments of suppliers.

3. Reduce your costs and review them

Cost reduction is a premise of every company, but so is its review. This means, for example, that you have to review your expenses continuously and compare them with previous months or years. One question you have to ask yourself is, do I really spend for what I need?

Another aspect you have to do in parallel is market testing. After all, the general external context will give you the keys to knowing where you can save. There is always something where you can save a few euros and that is crucial for the income statement.

It should be noted that the reduction in costs is not due solely to prior mismanagement. Time lag is possible, and catching up as soon as possible also makes a difference.

4. Review your external financing

The external financing you use is a recurrent source of expenditure. In this case, it is important that you address issues such as the status of your loans, credits and policies. What's more, make sure that your level of debt is in line with what you need.

Furthermore, it is recommended that, if you need financing, you check the interest you are going to pay. This makes a difference and that is noticeable in the long run. Many companies go bankrupt due to lack of financial manoeuvring, which is why this is a key issue. In addition, failure to repay a loan in due time and manner has other negative consequences, such as inclusion in default files or the non-granting of new financing.

In recent years, new financing formulas have appeared, such as fintech companies and crowdlending. It is good to explore these possibilities, as long as they are worthwhile for you.

5. Check your results regularly

Regularly checking your results will let you know if you are doing things well. It is true that you have to take into account the global economic context, but it is one of the most reliable variables in your financial management.

Remember that your results are not only related to what you sell but also to your cost management. It is therefore a quantity that you have to compare whenever you can. The reality is that this issue is at the core of how you can improve your financial management. Without having a comparison you will be going in blind and that multiplies your chances of getting it wrong.

The emergence of Big Data and ERP have allowed this process to be faster. It is now possible to compare not only financial years, but days and months of successive financial years.

6. Manage collections diligently

Payments must be diligent, but charges must be even more, if possible. It is essential that you have a history of each customer to know if they are paying on time. And, of course, you will want to be reminded if a customer is late. In addition, this information should help you to stop working with clients who do not offer guarantees.

Cash-flow problems are all too often related to this mismatch between payments and receipts. As a result, and as a general principle, you will have to have clear dates and limits to avoid problems.

7. It incorporates comprehensive management software

Management software is one of the key tools for you to quickly and effectively understand your company's financial status. SAP Business One ERP enables financial management to be carried out in an agile and efficient way, with timely consultation of information.

Nowadays, automation is a road of no return and is applied by almost all companies. Having first-hand information is necessary to make decisions and these tools make it easier.

Conclusion

The above guidelines on financial management for SMEs will enable you to be more competitive. And, of course, investment in management software is a strategic issue. At SEIDOR Business One we have several solutions adapted to the idiosyncrasies of your company.