Financial health measures the monetary strength of your organization. It is estimated via different factors that assess the viability of a company as an ongoing business. If a venture spends more money without contributing to its stability and growth, it may result in its downfall and make it difficult for the business to meet its regular expenses.
Knowing the monetary value of your company will allow you to develop survival, growth, and expansion strategies. Here are some tips to improve the financial health of micro, small, and medium enterprises (MSMEs) and boost business growth.
- Planning
Determine financial goals for your business and regularly measure these. Build one-year, three-year, and even long-term plans to set the direction for your company. This helps to know the strengths and weaknesses of the organization and measure its performance against competitors. Regular planning and measuring objectives will help you make informed decisions if any changes are required.
- Maintain cash reserves
It is recommended that you hold at least six months’ expenses as cash reserves. This will help you survive any unforeseen circumstances. This point has become more important than ever in the wake of the COVID-19 pandemic.
- Track your finances
You must prepare at least three financial statements, which include a balance sheet, profit and loss statement, and cash flow statement. The balance sheet gives you an insight into your assets and liabilities at any point in time. A cash flow statement shows the cash generated and spent during a particular period. It also reflects the sources and uses of funds along with interest and tax expenses. The profit and loss statement measures the amount the company is spending when compared to the earnings.
Strong financial health is not only important to sustain the business but is also required if you apply for a business loan. Lenders will assess the financial situation of your company and analyze various ratios, such as quick ratio, debt-equity ratio, current ratio, days inventory outstanding, and days sales outstanding to determine your SME loan eligibility.
Availing of a loan can help you meet your short-term working capital requirements as well as fund your long-term investments like purchasing equipment and plant and machinery. However, when you apply for an SME loan, the CIBIL score is an important factor considered by lenders while evaluating your application. So, you must maintain a good credit score to ensure your loan application is not rejected.
Banks, as well as non-banking financial companies (NBFCs), offer competitive SME loan interest rates that allow you to grow your venture and take it to the next level. Mahindra Finance is a popular NBFC that offers different types of loans to meet the various requirements of businesses. To know about the terms and conditions, eligibility norms, interest rates, and MSME loan documents required, visit its official website today.
