Monitoring the financial performance of your business involves a lot of criteria. This is because a balanced finance book affects the entire structure of the business.
If your financial performance doesn’t balance with the rest of the expenses and costs, the business could be in trouble. To start, you have to ask a lot of questions and draw shreds of evidence and facts to prove that your figures are accurate and well-calculated.
Questions like, if we continue running the establishment in this manner, where are we headed in the next five years? Are we having any issues with the cost and income generated at the end of the day? Is there a need to cut down the budget for the month or year?
What is the financial goal of the business? Are we meeting up with the plans we had for the finance?
All these questions will help you and your finance team to decide the next lines of action. Do you need to change the strategy for payment? For example, monitoring customers’ records with payment receipt template in excel.
Most importantly. You’ll find the answers to your questions when you analytically monitor the financial figures and overall performance and response to your services. Sometimes, you’ll find that you might be making tons of sales yet the figures do not reconcile at all. These are all important for monitoring the financial performance and records of your business.
To make more productions. Your business needs to make enough profits, have strong figures from sales, and have a steady cash flow. Thus, it’s of utmost importance to run the business financial performance with your finance team or accountants on a daily, weekly, or monthly basis.
In this post, we’ve highlighted ten tips that can help you to monitor the financial performance of your business. Let’s take a look.
What is Financial Performance?
Financial Performace simply means an ultimate and total evaluation of a business’s overall standing in areas such as acquired assets, liabilities, revenue, equity, investments, expense, costs ad overall profit margins.
You can measure this through various business and accounting-related formulas for measuring a business’s financial effectiveness. A complete overview of a business’s financial performance gives you an eagle view and first-hand understanding of where you need to focus on for the next quarter.
It also helps you see clearly what you’re doing right so you can decide to continue or change the strategy. If a certain strategy is profitable, it could be a sign that you’re doing something impressive and applause-worthy.
For admin and internal audits, financial performance is decided upon before concluding on the business’s standing and current influence in the market. It says a lot about the response of the market towards their products and services.
All of these easily reflects in the financial statement reports. By studying the financial performance of your business, you can easily decide if you need investments. It also helps investors to determine if the business itself is worth investing in or just a liability waiting to explode.
Now, before you make calculations for your business, there are several indicators to study and monitor. These indicators help you conduct a financial; statement analysis of the business.
That said, what is financial statement analysis?
What is Financial Statement Analysis?
Simply put, financial statement analysis is a simple process that business uses to gain an in-depth understanding of how their products and services are performing in the market.
This process involves a breakdown of the four critical statements in the financial statement of a business. This includes the business balance sheet, the income statement, the business cash flow statement, and the financial annual report.
All these details are adequately written to help you understand what we mean, what you should do, and why this is important for your business.
Let’s have a look at 6 useful tips to help you monitor your financial performance.
1. Understanding and preparing Business financial statements
Financial statements involve writing basic but detailed reports which produce a business profit and loss statement. These are essential indicators of how businesses perform and the market acceptability of the services rendered by the enterprise.
A good financial statement gives a better understanding of the financial health of the business. It also gives the business owner or board of directors a closer perspective, shining the light on what they need to do to see how their business is faring. Through studying the financial statement, one can decide if they’re in close performance with their competitors or if the market has outranked them, outrightly.
This way, they can focus intensely and get their feet into the waters to avoid being swept off the shores by the tides and current raving market trends.
2. Close study of the aged debt balance
Most businesses prepare an old or aged debtors balance for the health of the business at stake. Wat this means is that the financial auditors or accountants of the establishment run a close study of the customers who are yet to pay them for products or services rendered in the past.
In order words, these customers owe a visible amount of money to the business over a period. An aged trial balance can be prepared every month or yearly depending on how the owners keep track of irregularities in the financial operation of the business. Afterward, the business owner can generate contact with all debtors and follow them diligently to retrieve the money. Business debts can immensely affect the financial performance of the business if not handled effectively.
3. Take an inventory record and check
The full and maximum productivity of a business depends solely on the provision of necessary machinery and equipment. Hence, a lot of serious-minded business owners often invest heavily in these things to aid the full running of the enterprise.
Without these things, there’ll be a pause in production which adequately translates to a negative impact on the financial performance of the business, itself. Repairing inventor records is a careful process that helps you know what your business needs to function properly. With the right IT strategy and optimization of the process inventory will always be kept at an optimum level.
This includes having a list of the purchases stocks, how much was used, how much was wasted, and any missing equipment, do you need to stock the warehouse? This will inform you if you need to purchase raw materials for production and also calculate the input and output ratios including the turnover of the business. By so doing, you’re able to keep a healthy track of where your investment goes.
4. Study of business cash flow and fund statement reports
The two indicators for measuring the financial health and performance of the business include the fund and cash flow statement of the business. This informs the business on how much cash flows into the enterprise. When a close study is given of the balance sheet, one can tell the revenues and expenses as well as where the flow is from or goes.
A business only runs with proper current income, not notional income. Also to note, more expenses over cash flow isn’t healthy for the business. This is where studying these indicators helps the business to thrive or seek help.
5. Examination of business financial overheads
Previously, we raised the importance of preparing financial statements for the business. We were to see the role it plays in understanding the financial health of the business. However, financial statement reports are never enough to understand the performance of the business.
Hence, the financial overheads need to be examined and analyzed. In this process, the business needs to look out for encrypted messages in the numbers where it arrears to be weak areas.
For example, checking the overhead costs like employee salaries, rent of the shops, stocks, marketing, and advertisement costs. Not just to check them as part of the cost but to check if they’re in check, do they need to be checkmated, and overall, do they bring much-needed profitability to the business.
6. Examination and breakdown of expenses for marketing and publicity
One of the areas where the money goes into creating awareness for products and services is the marketing and publicity of the business. Despite the much profit, it brings to the business, it also incurs much cost on the business as well. A complete breakdown of the marketing expense can be done at the end of the month or early too.
Here, you ask yourself: how much money did you spend on marketing this season? Did it yield returns? Which marketing strategy yielded many returns and which ones did not respond despite how costly they are, is this a necessary cost for the business or frivolous spending?
These questions can be pulled together and answered properly to give you an overall understanding of the financial performance of the business.
Financial performance is the lifeline of any business and establishment. If you pay close attention to this aspect of the business going forward, it’ll make a huge difference in the revenue of the business structure.