As a business leader, you know how important it is to monitor your company’s financial health. Your balance sheet alone requires frequent checkups to ensure that all is well.
While you’re busy inspecting every detail, it’s easy to overlook the big picture. In my experience, there are a few specific situations in which a financial overhaul is pretty much guaranteed: Your budget has become so outdated that it doesn’t match your requirements, your company has grown significantly over the past year or maybe you’re applying for a business loan or pitching your business to investors.
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Of course, none of these situations are negative, but they do provide guidelines for maintaining a stable financial environment. Nonetheless, sometimes your company still winds up in a financial rut.
Business bankruptcy filings have declined for the last five years, but 26,983 businesses still filed for bankruptcy in the U.S. in 2014. That means that a lot of business owners are still missing the signs that financial ruin is near. In fact, RSM Bird Cameron’s thinkBIG 2014 study revealed that only 35 percent of business owners can accurately assess their companies’ worth.
The Benefits of a Financial Consultant
To accurately assess your company’s worth, you may need a financial consultant. Bringing in a financial consultant can be beneficial for a couple of reasons. First, a consultant will look objectively at your finances, whereas your judgment could be clouded by emotions. All too often, companies get into a specific pattern and find it difficult to reexamine some of their core principles that may have outlived their effectiveness.
Furthermore, a consultant’s deep understanding of tax laws could actually save you money, especially if you need to account for rental property, self-employment income, etc. They will know every possible benefit you’re eligible for; as an added bonus, you won’t have to make the long-term commitment of hiring a permanent staff member.
Once, my team worked with a company that was bending over backward to satisfy every type of customer, but in doing so, it put undue strain on its resources. After an in-depth analysis, we discovered that many of its seemingly attractive customers were actually costing it money, while certain unloved segments of its market represented prime growth opportunities. The company didn’t have the time or resources to analyze its data, but by hiring an outside consultant, it was able to get to the core of its financial issues before the situation became irreversible.
When to Call for Help
The benefits of a financial consultant are numerous, but before you rush into anything, you need to figure out whether your company is at financial risk. Here are four signs:
- Increasing losses: Examine your company’s balance sheet, and compare current cash holdings. How did it look last year? How about three months ago? Is this a recurring trend? If so, you must figure out why your company is building losses.
- Stagnation: If you haven’t noticed any significant losses, that’s great. But you still need to make sure your business is growing. If the numbers show that your company has plateaued, it’s time to reevaluate your financial strategy.
- Not paying bills on time: Sometimes, bill payments are late due to small oversights. However, failing to pay bills on time because there isn’t enough money in the account is a sure sign of financial troubles.
- Low profit margin: Considering the time and money that you’ve invested, do your after-tax earnings seem reasonable? Investing more than what you’re seeing in returns will give you a surprising set of financials. If your numbers don’t make sense, it may be time to hire a professional.
If any of these situations sound familiar, you need to invest in a qualified financial expert. Trust me, consulting a professional can help you sidestep the downfalls that many small businesses face so you can get back to serving your customers.