Whatever type of business you own, there are typically just a few key financial indicators that when monitored properly, can tell you everything you need to know about the success of your business, and how to keep it that way. Fail to monitor these indicators, however, and you could soon have a management crisis on your hands that’s hard to come back from.
While financial statements that business owners receive on an annual basis can tell a lot about how a business has been doing, and what plans can be made for the long term, they often don’t tell enough about how a business is doing right now, in the present day. If your revenues are in decline, your inventories are dwindling, or expenses related to payroll are skyrocketing, wouldn’t you want to know about it right away so that you can correct it? Similarly, issues like failed payment handling can have a significant impact on your financial health, and timely awareness is crucial for swift corrective measures. This highlights the importance of having robust monitoring systems for all aspects of your business finances.
Waiting until the end of the quarter, or even the end of the financial year to find such things out, simply doesn’t make good business sense. Of course, if you’re working with an experienced small business professional, you likely won’t have to worry about monitoring these indicators, as they’ll be doing it for you. However, it never hurts to be proactive when it comes to running a business.
Below are 5 categories that typically contain a company’s key financial indicators, and which if tracked appropriately, can help you make a success of your business, and keep it that way:
1. Orders and returns
When revenue is tracked alone, it can be easy to gain a false picture of how your business is really doing. You need to look at whether you’re selling more of your product over time, or whether revenue is rising due to increases in cost. Are sales are going down causing you to lose market share, or perhaps your customers are routinely returning items they’ve purchased from you? Take a good look at your orders and returns to determine whether any changes to processes or policies need to be made.
2. Breaking even
Some months may see you needing more cash to cover costs that are both fixed and variable, but if you’re not making enough revenue, will you be able to break even? You may need to make some adjustments to expenses or marketing campaigns to help you cover shortfalls in revenue, if you’re using valuable cash reserves on a regular basis.
3. Liquidity
Work with your accounting professional to reconcile your businesses bank statements every month, and better understand what cash is available to you. Be proactive with this and you should be able to avoid haemorrhaging cash and putting your entire company at risk.
4. Inventory
The key to turning a profit often lies in controlling your inventory. Avoid overstocking while at the same time ensuring that you’ve always got enough to meet consumer demand.
5. Payroll
With the help of a payroll provider, you should be able to make sure that you employ only those who are required, and avoid over spending on labor expenses.
With meticulous analysis of your businesses key numbers, you should easily be able to spot the main financial indicators that will give you a much clearer view of just how well the business is doing, while identifying any areas that might need improvement. This will help you manage your business better, and maintain a stronger handle on every aspect of it.
