At a top level, improving small business finance involves lowering costs while increasing income. However, that’s easier said than done. To improve business finance, it’s important to have a plan. Optimising key processes and putting a structure in place can help you get into a stronger position for growth – financial or otherwise.
In this practical guide, Rapid Formations, a company formation specialist, shares some actionable tips you can apply to improve business finance – whatever stage of your business journey you’re on.
Conduct a financial health audit
Conducting a financial health audit is an effective way of uncovering unnecessary spending, which you can then cut to improve efficiency.
While cutting costs might initially seem daunting, you’ll likely find that you’re inadvertently wasting money in some areas. For example, you might have subscriptions that you no longer use or multiple pieces of software that do the same things. Trimming costs like these can increase your bottom line without inconveniencing your day-to-day operations. Conducting regular audits will help you adapt as your business evolves and avoid paying for things out of habit.
To conduct a simple cost audit:
- List all your recurring expenses over the past financial year
- Identify any duplicates or unused expenses
- Cancel unwanted agreements or renegotiate where possible
If you’re able to cut £100 a month in wasted fees, you could free up to £1,200 a year to spend on growth initiatives that offer a higher potential return on investment.
Optimise cash flow
You don’t necessarily need to cut costs to improve liquidity. You can also do this by optimising your cash flow.
Late-paying clients can put a strain on your small business’s finances. While it’s out of your control whether a client pays you on time, there are some things you can do to improve the likelihood of them promptly paying your invoice.
Some of the things you can do to optimise your cash flow include:
- Implement clear payment terms – Set boundaries with your clients and use timescales that work for both parties. You don’t have to wait 30 days for payment if some clients are willing to pay in 14 days (or even in advance).
- Offer small early-payment discounts – Incentivise quick payments by offering discounts that you can afford to offer.
- Use late fees – Contain a disclaimer in your invoice reminding clients that you charge late fees for any missed payments. Make sure you enforce them, too.
- Automate reminders – Make use of your accounting software’s features and send out timely reminders to clients who haven’t paid invoices. For example, one email can go out at 1 day past due, and another can follow at 7 days. Using automation takes the stress of chasing missed payments away, while sending out a clear message to clients that they need to pay you.
If you’re owed money, you want to receive it as soon as you’re entitled to it to minimise your reliance on credit and maximise potential interest earnings.
Implement a rolling budget forecast
Accurate budgeting plays a significant role in maintaining financial health. Having a rolling 12-month forecast allows you to anticipate fluctuations and manage your finances proactively, regardless of where you are within the year.
With a rolling forecast, you can anticipate your cash inflows and outflows. You should also adjust it for seasonal changes and planned investments. As you’re updating it monthly, you should be able to catch issues, such as supplier price increases, early. For example, if a client cancels their contract, you can readjust your budget for the months ahead rather than keep chasing an unattainable target. It also helps you keep an eye on your spending. So, if you’re pacing to overspend at a mid-year point, you can quickly act on this.
If you treat your budget as something dynamic, rather than a series of fixed figures, it can become a powerful part of your small business finance toolkit.
Build a financial safety net
Any business of any size can experience a downturn. As a small business owner, you’re usually more vulnerable to unforeseen changes because you’ll typically be working on a smaller margin than large corporations. However, having a financial buffer will help tide you through challenging times.
Unexpected expenses or events can negatively impact even the most well-managed of businesses. A financial safety net can make it easier to navigate these issues.
Some of the ways you can build financial resilience include:
- Setting aside an emergency fund – Ideally, you should have a fund that covers three to six months of operating costs. While it might be tempting to invest everything you have into growth, it’s worth putting money away to protect your business during difficult periods. Try to factor in an emergency fund when you’re budgeting.
- Make small monthly contributions that accumulate – If you’re starting on a low budget, you probably can’t put the ideal amount of money aside straight away. If that’s you, commit to putting a realistic monthly contribution into your business’s emergency fund. It’ll soon grow.
- Ensure you have access to credit – As a small business owner, you’ll likely need to borrow funds at some point. Arranging a low-interest line of credit can give you flexibility. For example, if a client doesn’t pay on time but you need to meet a bill, you can use credit to cover it until payment comes in.
You may want to consider talking to a financial advisor about your options to create the most effective strategy and make your available funds work as hard as possible.
Get started by streamlining company formation and administration
Financial strength begins with proper company formation and administration.
Using a company registration service, like Rapid Formations, reduces your admin burden and helps ensure compliance. While it’s an upfront cost, the investment frees up your time to focus on finances.
With a solid company formation in place, you’re ready to take on tasks like auditing, optimising your cash flow, and budgeting.
While steps like creating a large financial safety net may not yet be possible for you, making small and consistent improvements can still make a significant impact on your business finances. So, even if having six months of operations costs set aside is not yet something you can afford, you should still strive to maximise every penny that you spend. Why not start with an audit and put any money you save into a new emergency savings pot?
Running a small business can be tricky, but with the right support in place and a commitment to improve business finance, you’ll set yourself up for the best chance of success in 2026.
