People always ask, “How can I stay afloat when my business faces unanticipated expenses?” There are smart ways to do that.
Financial disasters usually result in cashflow problems and may destroy a business. Smart businesses budget for everything and follow all the rules of financial management. However, unexpected expenses and operational costs happen and sometimes they make a huge dent in the cashflow and may even threaten the health of a business. It helps for a business person to be proactive and prepare for such eventualities. Here are smart tips to keep the business cash-positive even when there are unexpected expenses.
1. Insure crucial assets
A business should consider taking out insurance for commercial property, equipment, business interruption, commercial vehicles and marine transportation.
A critical piece of equipment has to be insured because should one break down, a business may be faced with a massive bill to repair or replace it. If the business has a loan it still has to continue paying. This can seriously affect cashflow and may result in stopping business operations. That is why critical equipment has to be insured.
A person who is key to business operations should be insured to cover revenue and capital loss. The policy would cover death, disability and illness of the person and the benefits are paid to the business.
2. Get a charge card with no pre-set spending limit
Having a business charge card makes a huge difference to a business. A charge card is similar to a credit card but it does not charge interest though it charges an annual fee. However, the borrower has to pay the balance upon receiving the statement, usually on a monthly basis. The major advantages of a charge card may include an uncapped spending limit and generous rewards for the card holder. It brings more flexibility should a business have unexpected expenses. To get a charge card the business has to apply for approval and requires excellent or good credit rating to access it.
3. Keep good business records
Businesses should keep strict records of all business expenses and know what they can claim for tax purposes. Taxable income depends on assessable income less deductions and those deductions have to be proven to the tax office at the end of the financial year. To avoid the shock of a tax bill at the end of the financial year, it is wise to join the pay-as-you-go scheme so that income tax is paid monthly and only the balance is paid when tax assessment is complete. Enlisting the help of a tax professional also saves time and money.
4. Strictly account for shrinkage
A smart business keeps strict records of inventory of materials and products. This includes regular stock counts to determine if there is a difference between actual inventory and recorded inventory. If this is done correctly the business owners and staff can tell if there is any shrinkage. Shrinkage is loss of inventory which is never expected and automatically eats into profits. It can be caused by theft, damage of materials or products, vendor fraud, or administrative errors. Shrinkage has to be accounted for and reported for tax purposes. Steps should also be taken to improve security (another cost) and accuracy of records.
5. Get professional help
It is not easy for a business person to have all the skills necessary to run the business. Therefore, it is wise to ask for professional help. The professional will provide guidance in order to improve financial and inventory management, create a budget and stick to it, handle unexpected costs and expenses and negotiate repayment arrangements with creditors.