8 Ways to Protect the Finances of Your Enterprise

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Making money is, beyond doubt, the most important aspect of running a successful enterprise. However, what you do with this money matters just as much as actually earning it.

You see, protecting your finances from being stolen, wasted on bad investments, or mishandled by the rest of your staff is a challenge that a lot of enterprises still lack a solution.

For those who are really concerned with this and want to find a way out, here are the top eight solutions that will help you get out of this peculiar problem.

1. Diversify your investment portfolio

Sure, some of your excess profit will be reinvested, while cash flow will be used to cover the costs of your daily operations. Still, how do you invest the rest?

Well, a part of your funds can go toward creating passive income, like buying properties such as commercial property in Calgary for sale, to rent out, stocks with dividends, and intellectual properties is just one of the ways to maximize the effectiveness of your profit.

The rest should go toward assets that have a lower correlation with the rest of your investments. For instance, if your main investment venue is S&P 500 stocks, you might want to consider investing more in cryptos.

Cryptocurrencies are, on average, more volatile, but they’re an investment with a particularly high potential for returns. They’re a relatively new asset (just over 15 years old), and their global regulation is still ongoing. Despite this, the asset has a wider adoption rate than ever before and thanks to all the different kinds of new coins (stablecoins, AI coins, meme coins) the field is more and more appealing to new investors.

Sure, big cryptos like BTC and ETH are great, but you also want to invest in other cryptos with high potential once you’ve done your research, as these often have a greater chance of increasing their value several times over, compared to Bitcoin and Ethereum which already have relatively high values.

2. Monitor cash flow

In the past, companies conducted audits. This was a relatively effective method, but it created a lot of distance between a financial problem and its actual detection. What do we mean by that?

Well, like with most mistakes (or crimes), it’s best if you notice something in time. The longer it takes for you to figure out that something bad has occurred, the smaller the odds that you can fix it at this hour.

With the right tool, you can automate this and even get a notification when a suspicious activity is noticed. Moreover, it’s far easier to track digital footprint, which makes spotting suspicious behavior easier.

3. Diversify streams of income

If you have just one product, add some more to your offer. If you are providing just one service, either split it into a few under-services or add another one to the list. This way, you’ll diversify your offer and make your business finances (mostly your income) more resilient than before.

This will also make it easier for you to pivot in the future, should you need to do so. Simply having a minor product that you’ll switch your focus to later on is a major contingency plan. For instance, Wilkinson Sword pivoted from making actual swords to making razors, a shift that saved a company.

4. Reduce your expenses

The simplest way to improve your finances is to try and reduce your expenses. There are so many ways to reduce your operational expenses, ranging from buying your office so that you don’t have to pay for rent to running fully remote teams.

You can also look to eliminate some of your debt. Starting a business without debt is nearly impossible for about 78% of entrepreneurs who start their businesses with personal funds. Clearing this might be one of the best ways to reduce your monthly expenses. It could also be one of your first priorities. This is the so-called reaching of the break-even point.

Most importantly, you should consult your accountant about all the ways in which you can make budget cuts. There are a lot of ways to reduce your expenses and all you have to do is do some planning and audit your current spending.

5. Invest in training

One of the best investments is the one in training your staff. This is especially true when it comes to specialized tasks and leadership skills.

There are a few reasons why business owners decide against this. First, it’s really hard to quantify the financial value of knowledge. In other words, while you can intuitively know that it’s worth it, you’ll have a really hard time putting this into actual numbers. What’s the ROI? Even if you see a performance improvement after training, it’s still hard to say if it came just from the training or if there were other factors involved.

The next thing that some fear is the risk of paying for expensive training for an employee who won’t be there for too long. Well, this is a risk that you must take and the investment that might actually boost your talent retention.

6. Purchase insurance

One of the best ways to protect your business is to invest in adequate insurance. At the time, this may seem like a waste of money. After all, insurance is the type of investment that you hope never to cash out. However, due to positive bias (a psychological phenomenon that makes you believe that good outcomes are likelier than bad ones), people often feel like the investment wasn’t even necessary.

The right insurance will cover a lot of things. It can cover the costs of settlement, the cost caused by the loss of profit due to downtime, repair costs, damages costs, and much, much more.

Keep in mind that, without insurance, all of this would have to come from your own pocket. Even businesses that have an emergency fund usually don’t have this kind of money lying around. It’s better to have this extra layer of protection.

7. Prioritize your cash reserve

Usually, when there are unexpected expenses (not of the kind that can be covered by insurance). You will find yourself in a shortage of cash. So, in that particular scenario. Wouldn’t it be more intuitive to prioritize maximizing your cash reserves?

This way, you have insulation against extra expenses and minor negative occurrences, which means that you’ll find yourself in a scenario where you need an emergency loan a lot less frequently than you would expect.

Keep in mind that it’s not just an individual who can get stuck in a debt loop after a single high-interest loan. This can happen to a business, as well, and it’s something that you need to avoid. Having a cash reserve (or just prioritizing liquid assets when investing) is a way to do so.

8. Don’t cut spending too severely

Previously, we’ve mentioned that cutting expenses is a good idea; however, you can’t do this randomly or recklessly. Imagine running an ice cream store and getting a brilliant idea of cutting costs by giving everyone half the portion while still charging the same. How long until everyone abandons you?

What about firing an employee that you can’t afford to fire? Sure, the payroll gets thinner, but who will do the extra work?

It’s really hard to figure out where you’re allowed to cut costs. Take your time, carefully consider everything, and only make strategic cuts.

Wrap up

Protecting your finances means making your business financially resilient. You can’t just stuff your profit into your mattress. Instead, you need to invest it and spend it on things that will act as a bulwark against negative unexpected occurrences. Now, at least, you know how to do this the right way.

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About the Author: Brian Novak