10 Ways To Improve Your Business's Financial Health

The financial health of your company impacts more than just your sales threshold. In fact, prioritizing the financial health of your business can lead to long-term success and scalability despite increasing competition.

Business health isn’t always easy to obtain, as studies show that 45% of companies fail in the first five years. Why is this the case? There are a variety of factors that can contribute to a business’s downfall, such as lack of capital funding, poor cash flow, and unsuccessful marketing initiatives.

At the end of the day, most of the contributing factors to a business’s demise comes down to the financial health of the organization. In this article, we will outline 10 ways that you can improve your business’s financial health, helping you become a part of the 55% of businesses that make it past the five-year mark.

Billing is the lifeline of your business. Without billing customers, you wouldn’t have any revenue to support your operations. Staying on top of billing is a fundamental component of building your business’s financial health. The quicker you send bills out, the faster you can expect to receive payments.



Most businesses can expect a turnaround time of 30 days for an invoice. If you wait to bill customers, this can take even longer, negatively impacting your cash flow. Consider offering electronic payment methods and invoice automation to bill your customers quicker and receive payments faster.

Contrary to what many business owners believe, their business does have a credit score. A strong credit score can help your business receive funding from financial institutions. Being able to take advantage of your credit score helps you minimize the impact of unexpected costs.

To build up your business credit, open a bank account through a financial institution or leverage credit cards. Using a business credit card can not only generate additional discounts through points, but can also contribute to a strong credit score. If you do choose to open a credit card, make sure you properly manage the balance by making on time payments.

Your profit margins can also impact the financial health of your business. There are two tangible ways to increase your profit: earn more revenue or spend less. Many businesses struggle to generate more revenue and maintain existing expenses, which is why spending less is the go-to method.

Do you really need that magazine subscription no one uses? How about keeping all the lights on when you leave for the day? Analyzing the areas you can cut costs can be done by looking at the income statement. Highlight three accounts that you want to lower and give yourself a budget for the next month. Staying within those limits can help you increase profitability, which is a primary factor of business financial health. After all, businesses that show a loss often have continuity issues.

Cash flow is one of the top downfalls of small businesses, with data supporting that 82% of businesses succumb to this issue. Effective cash flow management involves tracking the changes in the cash account by timing transactions. For example, if you are low on cash, you should draw on a line of credit or place purchases on a credit card to avoid draining your bank account.

The opposite is true as well. If you have excess cash, you can consider taking advantage of early payment discounts, setting up an investment account, or purchasing a new fixed asset. Effective cash flow management relies on having clarity throughout the movements in your bank account, which is generally done through timely bank reconciliations and automation of data flow.

It’s not uncommon for business owners to try and handle the entire accounting function when first starting out. Whether you have low cash flow or minimal transactions, taking on this burden can seem like a no-brainer. Is this still the case as your business begins to grow, add employees, and increase profitability?

Odds are your time is better spent focusing on other aspects of building your financial health, like increasing revenue with new customers or building a relationship with a banker. You want to extend your team to include a network of professionals that can guide you on the next best steps for your business. Maybe your bookkeeper and accountant finds that changing accounting methods has a positive impact or that there are tax planning strategies you missed. The insight an accountant and bookkeeper has is vital to improving the financial health of your company.

Are your cash levels low? Don’t feel alone, as the Center for Financial Services Innovation reports that most businesses only have a cash safety stock equivalent to less than one month’s worth of operating expenses. With shipping delays running rampant, employee turnover at all-time highs, and customers constantly changing demand, your business should have the necessary cash stock to support operations when business disruptions occur.

Consider prioritizing effective cash flow management until you have an emergency fund equal to six months of operating expenses. Whether you use the funds to pay employees when an unexpected cost arises or leverage extra cash to make more informed business decisions, the financial health of your business relies on having a safety net.

Bookkeeping is the foundation for a successful and financially healthy business. Not only can bookkeeping ensure completeness in your accounting function, but it can also give you the insight needed to make informed business decisions that prioritize the health of your company. For example, if an investor approaches your business about expanding with additional contributions, they will want to see financial statements. If you don’t prioritize bookkeeping, it could take you days to generate these documents, letting the opportunity pass you.

Bookkeeping is also important from a budgeting standpoint. How can you implement actionable change if you have no tangible information on how your business performed in the past? Most business owners don’t have the time to complete bookkeeping themselves or the capital to hire an in-house employee, which is why outsourcing to a qualified accounting firm like ,, Better Books Online is an attractive option.

Technology has come a long way in the past decade. Manual processes are a task of the past with automation at the forefront of innovation. Most accounting software programs can connect with your bank and credit card accounts to seamlessly flow data without the need for manual entry. This can save you time, promote productivity, and give you the information needed to improve your financial health.

Technology can also be infused into your receivables and payables. Offering customers electronic payment methods boost cash flow management, giving you access to funds immediately instead of waiting a week for a check to clear. In addition, same-day vendor payments allow you to leverage early payment discounts or push payments off until the invoice date to time transactions.

One of the top ways to make sure your business stays solvent is to consistently review your numbers, such as revenue, cost of goods sold, payroll, overhead, and receivables. Learning to read spreadsheets, financial metrics, and financial statements is a non-negotiable component of driving your business toward financial stability.

The reasons for changes in revenue and operating expenses give insight into the decisions your business should be making. If your revenue grew because of a billboard advertisement, you know that is one of the avenues you should be utilizing in your marketing budget. However, if there is no increase in revenue, you should pursue other options. Divulging the numbers of your business tells you more than just how profitable you were.

Being a small business owner is arguably one of the hardest jobs. While you are running endless laps trying to keep your business healthy, it’s important to remember that you need to keep yourself financially stable throughout the process. If your business has no credit history, lenders and investors will turn to your personal credit to make decisions. Without prioritizing your individual financial picture, you are putting your business at risk.

In addition, running a business doesn’t mean you have to sacrifice your retirement goals. There are retirement perks of being a small business owner, such as an Independent 401(k), Simple Plans, and Roth IRAs. Talk to your accountant or financial advisor about which retirement avenues work best for your situation.

Improving the financial health of your business allows you to thrive, scale, and achieve long-term success. Finding the right solutions for your business can seem overwhelming, which is why partnering with our team at Better Books Online is helpful.

Our team of experienced advisors gives you the ability to stay one step ahead, making business targets manageable and providing peace of mind. Reach out today to set up a consultation.

• Center for Financial Services Innovation. “Financial Health: A New Vision For Serving America’s Small Businesses.” Center for Financial Services Innovation, 1 July 2017, ,, https://s3.amazonaws.com/cfsi-innovation-files/wp-content/uploads/2017/07/21013535/2017_Small-Business-Financial-Health_Full-1.pdf . Accessed 19 Jan 2023.
  
• Reichman, Morris. “50% of small businesses fail within 5 years. Here’s why.” Payro, 24 Feb 2022, ,, https://payrofinance.com/50-of-small-businesses-fail-within-5-years-heres-why/#:~:text=Data%20from%20the%20Bureau%20of,to%2015%20years%20or%20more . Accessed 18 Jan 2023.
  
• Sutter, Brian. “The #1 Reason Small Businesses Fail – And How to Avoid It.” Score, 6 May 2022, ,, https://www.score.org/resource/blog-post/1-reason-small-businesses-fail-and-how-avoid it#:~:text=82%25%20of%20small%20businesses%20fail,will%20%E2%80%93%20of%20several%20underlying%20causes . Accessed 18 Jan 2023.