Someone checking there businesses financial fitness
Accounting Small Business Advice

Financial Fitness for Small Business

1 Jan 2023

Creating and maintaining a business’s financial fitness can be a challenge given the number of factors, both internal and external, that may be at play. However, with a clear plan and a commitment to following good financial habits, your business can remain financially fit and capable of weathering tough economic times.

No matter how successful a business or brand may have the potential to be, without a firm handle on maintaining financial fitness, it could fall on hard times. Conversely, when you prioritise the health of your business’s finances, you can focus on running and growing the business with more confidence, safe in the knowledge that everything is running optimally and that contingency plans are in place should tricky circumstances prevail.

There are many potential issues to overcome when it comes to creating and maintaining financial fitness: unexpected expenses; late payers; economic instability on a wider scale; and more. If these past few years have taught us anything as business owners, it’s to expect the unexpected and be prepared for it.

So, with that in mind, here are some top tips to help you get your financial fitness in order.

Create a realistic budget and cash flow forecast

Financial Fitness 101 begins with creating a realistic budget and cash flow forecast to work to.

Once you have a realistic budget in place, cash flow forecasting is a vital tool for managing finances. Cash flow forecasts help you monitor your business cash flow and foresee circumstances in which some additional plans may be necessary to cover unexpected dips in the cash flow balance.

It isn’t always possible to predict cash flow forecasts with 100% accuracy, but the vital component is maintaining realistic projections; by overestimating your cash flow projections, you can find yourself with insufficient funds to fulfil your financial obligations. Conversely, underestimating your figures can have you thinking that everything is going better than it is in terms of profitability.

Read More: How To Read A Company Balance Sheet


Review (and minimise) your expenses

Accurate budgeting and cash flow forecasting rely upon accurate management of expenses, and optimal profitability relies upon regular review and minimisation of expenses.

When analysing your outgoings, the first step is to check for any money being wasted on unnecessary purchases - and this includes the smaller costs, as these can soon add up and make surprising differences to your bottom line.

From there, prioritise your outgoings by categorising them into essential (such as bills and payroll) and non-essential expenses (outgoings not crucial to the success of your business).

Rank each expense in order of importance to ensure that the most critical costs are always covered first, and ensure that any larger expenses are accounted for in advance. By putting a little aside each week/month, the impact of larger outgoings can be minimised.

Keep your budget updated

A budget is only as effective as it is up-to-date, so make sure that you regularly review it and update any changes as they become known.

A business's budget will assist management in tracking cash flow, and progress, setting goals, and maintaining preparedness for financial difficulties should they arise. They are a crucial component of financial fitness but must be updated to remain an effective tool.

It’s a good idea to set daily or weekly reminders to review and update any necessary changes to the budget (and, therefore, your cash flow forecast). A six-monthly intensive review of expenditures is also ideal for maintaining accuracy and efficiency.


Get your management accounts in order

Efficiently run management accounts are key to growing your business, as they contain the figures needed to accurately define its financial health, current performance and key information to assist with making informed budgeting and investment decisions.

Management accounts typically include:

  • Profit and loss statement - detailing both the revenue and expenses your business incurs to provide an overview of its profitability

  • Balance sheet - a snapshot of the assets, liabilities and finance sources of your business to help understand its true current value and ability to meet debts

  • Cash position - maintaining an up-to-date cash position is crucial for informing budgeting and investment decisions, as well as whether any additional funding is necessary

  • KPIs (Key Performance Indicators) - vital for measuring specific areas of your organisation’s performance, such as customer billing and staff performance

Management reports can be easily run via Xero accounting software or similar, so be sure to have these accounts in order ready for the year ahead.

Outline a workable, efficient credit control strategy

One of the primary factors that can significantly impact the financial fitness of a business is suffering late payment, so it’s vital that you implement a sound credit control strategy to mitigate this risk.

Implementing a workable, efficient credit management strategy is another article in itself, but the key is to determine what works best for your business and what repeatable actions and protocols are the most sustainable.

From making account-opening applications and initial credit checks to creating invoices with late payment interest charges and making courtesy calls during the credit cycle, formulate a comprehensive strategy and stick to it. This is another area where automation can be an effective tool.

Develop a contingency plan

Few businesses can withstand significant, unexpected expenses, late payments, or downturns in business without a solid contingency plan in place. The key to sustainable financial fitness is incorporating a rock-solid contingency plan for weathering unexpected challenges.

Of course, it’s always a good idea to reserve some excess profits when the opportunity arises and park it in a savings account for a rainy day or tricky financial period.

It is also good practice to retain some reliable credit options to be best prepared for the unexpected. The best credit options may change over time, so these details should be reviewed with some regularity.

When establishing and reviewing your business contingency plan, ensure that you include the most suitable insurance and that you are adequately covered at all times.

Encourage shared responsibility for the company budget

Teamwork makes the dream work, as they say, and this is certainly true when it comes to sharing the responsibility of sticking to budgets. Managing business cash flow and budgeting should not be placed solely on one person’s shoulders - all employees should be made aware of the importance of taking their own accountability as their roles determine it.

One effective way to encourage a company-wide shared financial responsibility is to budget by departments or teams, ensuring that each section focuses on what they are spending and how closely they are sticking to budgets and cash flow forecasts. In certain circumstances, it can be appropriate to offer employee incentives for meeting budgetary goals.

Review and optimise your funding

The efficiency, accessibility, and cost-effectiveness of your funding strategies can make all the difference when it comes to the financial fitness of your business.

The right funding arrangements can assist you in achieving your business goals without hurting your cash flow. Conversely, when poor funding options are relied upon, it can significantly affect your business’s capacity for financial fitness, resilience, and growth.

Regularly review your funding choices and what other options may be more suitable. This can be a daunting task, so it makes good sense to consult with a reputable finance broker for further advice.

Don’t leave your employees behind

A truly financially fit business is one in which all employees also feel financially secure, as well as emotionally and physically.

One in 14 UK adults (7%) feel stressed every single day, with 39% of UK adults stating that lack of sleep and money worries are some of the primary causes of stress in their lives. Given this increasing stress, many workers are turning to their employers for support in achieving physical, emotional, and financial stability.

Any savvy business leader understands the importance of attracting and retaining top-quality staff, and a key component of maintaining such a workforce requires investment in their well-being. Common benefits offered to employees include private health insurance and dental insurance, but more and more businesses are now extending their range of benefits to include offerings that seek to address financial issues, such as debt and poor money management.

With around 50% of workers reporting that their financial worries distract them from their work, it stands to reason that investing in the financial fitness of staff members is a good idea for optimal productivity. Of course, financial woes increase stress, which decreases general feelings of wellness, so by addressing financial issues, stress is reduced, and employee well-being and productivity can be boosted in more ways than one.

Financial benefits offered by employers can include financial coaching, educational programmes, and seminars related to financial fitness and investing. Investing in the well-being of employees is not in itself a new concept. Still, the methods with which businesses support their staff are evolving, and a focus on financial wellness is gradually becoming as common as support for mental and physical wellness has been for many years.

Related: A guide to the employee share scheme 

Final thoughts

Every business is unique, and tailoring a plan for optimal financial fitness must take the specific needs of the business into account. And once you have a solid plan in place, don’t rest on your laurels! Be sure to implement a workable maintenance schedule to ensure that your plans stay on course and that all financial information remains up-to-date.

Maintaining a realistic, accurate budget and a healthy cash flow is vital to the success of any business, so if your business’s financial fitness is in poor shape, get into action sooner rather than later to optimise the opportunities that lay ahead. It only takes one unexpected financial complication to throw a poorly run business way off course, so don’t let that be you.

If you would like any advice on how your business can better manage its finances, our team of in-house tax accountants and solicitors will be glad to help.