In this article, we’ll delve deeper into the role of these resources in business management and present some practical strategies for improving a company’s financial health .

Financial Assets: Understanding Growth Potential

Financial assets are resources that a company owns and that have the potential to generate future economic benefits.

They include a variety of elements, from cash on hand to investments , trade receivables and inventories.

Since they reflect the resources available for investment, expansion, and daily operations, financial assets are crucial to a company’s functioning and growth.

Despite its seeming simplicity, cash is crucial to a business’s day-to-day operations since it enables it to pay personnel, cover operational costs, and make investments in expansion prospects.

Other types of financial assets, such as investments in securities or property , have the potential to generate additional financial returns in the long term.

What happens if there is an imbalance between financial assets and liabilities?

In an ideal economic world, financial assets should be greater than financial liabilities, as this means that the company has more cash than debt.

However, this isn’t the only rule for determining whether a company is healthy or not. After all, it’s necessary to analyze each financial indicator and conduct a comprehensive analysis.

For example, a company may have more debt than cash at a given time after borrowing money to finance a major project. It could also be the opposite, where it is in debt because it failed to manage its finances properly, leaving only judicial recovery as an option.

On the other hand, if a company owes very little and maintains a large cash balance, it means it’s financially sound but has very little growth potential. Or perhaps it’s waiting for the right moment to allocate these funds without relying entirely on loans and debentures .

Therefore, don’t judge a company solely by its cash flow; delve into the financial analysis before making a decision.

Techniques to strengthen your company’s financial standing

Adopting tactics that maximize the link between assets and liabilities is crucial for enhancing a company’s financial health. The following are some recommended practices:

Management of cash flow

By keeping a close eye on cash inflows and outflows, you may maintain precise control over your company’s cash flow. This enables you to spot trends in expenditure, foresee capital requirements, and steer clear of financial problems.

Therefore, it’s worth noting that money sitting in a checking account doesn’t yield any returns. Therefore, it’s important and common for companies to invest in financial investments to generate capital gains. However, here’s a point of caution! Avoid investing everything in investments without immediate or long-term liquidity. After all, having a good cash flow requires having capital available whenever needed.

Additionally, other points that contribute to a healthy cash flow are:

• Default control: if money doesn’t arrive on the scheduled days, there’s no way for the account flow to be balanced.
• Managing variable costs: While fixed costs are easier to manage, variable costs bring challenges such as low negotiating capacity, money leaving the account without predictability, non-standard payment methods, difficulty managing invoices, receipts, and tax receipts, etc.
• Automated payment management: Scheduling and automating payments prevents any payments from being forgotten and ending up having to be paid on a day when cash flow wasn’t expected. So, be predictable and make the most of automated payment systems, as well as banks’ own scheduled debit functions.
• Automated bank reconciliation: Nowadays, there are several ways for money to enter a company’s cash register, whether through card terminals, cash, Pix, or other online transfers. This makes it more difficult to manage whether every penny is correct. Therefore, it’s necessary to automate bank reconciliation to ensure healthy cash flow and prevent potential banking errors or bugs from compromising the correct entry of expected amounts.

Cost reduction

Carefully analyze your company’s operating costs and identify areas where you can reduce expenses. This could entail renegotiating supplier contracts, streamlining internal procedures, and getting rid of waste.

Some tips for reducing costs are:

• Strategic reduction: Not everything that costs more is actually a high cost. For example, cutting employee costs isn’t always the ideal move. Reducing specialized human capital can often compromise company operations and ultimately lead to higher costs, such as dissatisfied customers and stronger competition. Therefore, strategically analyze what can and cannot be reduced.
• Invest in long-term alternatives: We often focus on the present, but it’s important to consider long-term costs. One example is investing in solar energy. There will be an installation cost now, but a reduction over time.
• Hire a Controller: A controller is the ideal professional to analyze a company’s cash flow. Therefore, hiring a controller can provide strategic insight into cost reduction.
• Negotiating fees with banks: Banking fees may be simple, but if you’re not careful, these seemingly small fees can add up at the end of the year. Individuals already have free accounts, but this situation remains challenging for businesses.

Inventory management

Maintain strict inventory control to avoid excess inventory and obsolescence. This helps free up capital that can be invested in other areas of the business.

If your company is still small, check out these tips that can’t be ignored:

• Implementing the FIFO (First In, First Out) System : Organize inventory so that the oldest products are sold or used first.
• Use inventory management software : Use inventory management software that offers features like real-time inventory tracking, replenishment alerts, and detailed reporting.
• Conducting cyclical inventories : Instead of taking an annual inventory, perform regular cyclical counts of a portion of your inventory on a rotating basis.

Now, if your company is already larger, some more advanced tips are:

• Use predictive analytics with machine learning : Deploy machine learning algorithms to analyze historical sales data, seasonality, market trends, and other relevant factors. This analysis can more accurately predict future demand, helping to avoid overstocking or shortages.
• Implement IoT (Internet of Things) Technologies : Use IoT sensors in your warehouse to monitor environmental conditions (temperature, humidity) and item location in real time.
• Adopt Blockchain-based Inventory Management systems: Use blockchain technology to create an immutable record of all inventory transactions. This can range from receipt of goods to final sale, ensuring transparency and security throughout the supply chain.
• Advanced Cross-Docking and Route Optimization : Instead of storing products for long periods, implement a cross-docking system where products are received and immediately prepared for shipping.

Negotiation of payment terms

When selecting a supplier, talk to them about the potential for improved terms of payment, such as installment plans or cash transaction discounts.

Issues like late delivery or service, tax issues, and inventory deficiencies can all result in cash flow losses for your company. After all, if you don’t have products, you don’t have sales!

Investment diversification

To lower risk and boost possible profits, diversify the investments made by your business. Investing in various asset types, including stocks, bonds, and real estate, might fall under this category.

Avoid holding all of your resources in illiquid investments, as we have witnessed. Ensure the peace of mind for your business by effectively managing these assets.