Rosemary Peavler is a business consultant and subject matter expert in finance. She had a 25-year career as a college professor of finance and then embarked on a second career as a consultant and writer in finance and business. Peavler is the sole owner of her own consulting firm. She writes for a variety of publications and has served as a consultant for a number of businesses. Peavler shares her expertise and insights in business and finance. She offers finance tips to small business owners to help them succeed in the marketplace.
(Photo courtesy of Rosemary Peavler)
Calculate your breakeven point
The breakeven point is where your revenue covers your costs. Any revenue above breakeven is profit for your small business. Calculation of the breakeven point requires knowledge of the fixed and variable costs of your firm, along with pricing information. This knowledge is power.
Adjust your sales forecast to economic change
Economic times change rapidly, and small businesses must be prepared by developing fluid sales forecasts, and study forecasts of future broad market economic data along with forecasts of sales data for your business. Be prepared to rapidly respond to changes in the marketplace. Some businesses do well in down market conditions. Other businesses, such as those selling luxury items, do not. Know how your particular industry performs in various market conditions and build that into your sales forecasts.
Offer your customers a cash discount for early payments
It is important for small businesses to have adequate cash on hand. Your business can have an excellent cash position with some adjustments to its cash management policy. Differentiate your business from its competitors by offering a cash discount if your customers pay early for your products or services.
Reduce and eliminate your obsolete inventory
If your business sells products and keeps inventory in stock, you can differentiate your business by increasing your return on equity through reducing and eliminating your obsolete inventory. Holding inventory that is unlikely to sell is costly to a business because the business pays carrying costs on this inventory. Consider using a just in time inventory method, and you may see an increase in your return on equity.
Don’t let your debt escalate
If you have used debt to help finance your small business, don’t let the amount of your debt escalate. You can find the average amount of debt that businesses in particular industries have by accessing various sites online. That is a good guideline for your business. The more debt you have, the more financial risk you incur. Financing with debt will enhance your returns, but it will also increase your risk. Proceed with caution.
This article was written by Michelle Guilbeau for Small Business Pulse