Knowing whether your company is succeeding or failing is based on several factors. One of the most important factors in tracking success or failure is the financial performance of your company. Any business aims to make a profit and making a profit comes from having strong sales numbers and a good cash flow, among many other financial indicators. Management, and you, need to stay updated on this information to keep things under control. Therefore, it is key to routinely track your company’s financial performance and stay updated on your numbers on a weekly, monthly, or quarterly basis. Here are a few tips on how to keep updated on your company’s financial performance.
Keep Essential Financial Statements Prepared
To keep updated on your company’s financial performance, you should always have your financial statements prepared and up to date so that you can check them at any time and see where you stand. Regularly tracking your balance sheet and profit/loss statement isn’t only required by law but can help you better understand, at a glance, whether your company is making a profit or not. With line-by-line entries, you can see where your money is coming from, where it is going, and any irregularities in your finances. They can also show you how well your company is doing in comparison with competitors in your industry.
Analyse Financial Ratios
Material to sales is an important financial ratio that should be calculated and analyzed and can tell you whether or not you are wasting materials. The labor to sales ratio and overhead expenses to sales ratio will tell you how much you are spending on labor for each product or service you provide, and what percentage of your product sales are being spent on overheads. Using these ratios, you can calculate the scalability of your business and determine whether you should go bigger or scale back. You should also track your company’s working capital, which is an indicator of the liquidity of the business, and the quick assets ratio which indicates business solvency. Using all of these ratios together will show how well your business can meet its financial obligations such as long-term debts owed and future expansions.
Analyze Marketing Expenses
Marketing is arguably one of the most costly expenses for any business. Therefore, you should always track how much your company is spending on marketing and advertising. When tracking, you should analyze whether a marketing or advertising technique is directly translating into profits for the company. For example, it’s important to take note of the leads that are achieved through the marketing campaigns and whether or not those leads are being converted into actual sales. Advertising that produces leads that aren’t being converted into tangible financial benefits should be reassessed and perhaps eliminated. This analysis technique is called Marketing Expense-to-Sales Analysis.
Measure Stock Turnover
Stock turnover is an important financial indicator that should also be measured to keep updated on your company’s financial performance. Measuring Stock Turnover can tell you how well you are managing the product you are selling. This financial ratio shows how well your business is managing stock levels by comparing sales to stock holdings. The higher the stock turnover your company has, the better your Return On Investment (ROI), generally, but it can also help you to uncover theft or unneeded waste.
Technological Financial Solution
Another way to easily keep updated on your company’s financial performance is by using a Financial Technology Solution. Financial Advisors at Finvisor.com say that using financial technology can help keep you updated on your financial performance by keeping track of your accounts payable and receivable, compliance issues, and even HR related issues such as payroll and benefits. These financial systems can offer you a deeper insight into financial challenges that your company may face at each stage of growth. Using such a system can allow you to focus on your daily business needs while having an on-demand ‘CFO.’ This will save you time and energy and allow you to focus on what matters in your business.
Track Line of Business (LOB) Revenue and Expenses
When measuring your company’s financial performance, it can be useful to track your Line of Business (LOB) revenue and also expenses in comparison with target and budget. Comparing your LOB revenue with your projected revenue can help you see how well a certain department, or Line of Business, is doing financially. Comparing LOB expenses to the actual budgeted amount can help you budget more successfully in the future by seeing if your expenses have run out of control or been kept in line with your original calculations.
Measure Profit Drivers
Keeping updated on your profit drivers can help you evaluate the success of your financial business strategies. You can use a few ratios to measure your profit drivers such as calculating your earnings to sales ratio, your sick days to total paid days ratio, and your error rate ratio. Your earnings to sales ratio can measure how well you are keeping expenses under control while your sick days to total paid days calculation can help you measure the morale of your staff and their general well-being. Your error rate ratio represents items rejected versus items produced and can measure the quality of your products and production systems.
Any successful company keeps track of its competitors and makes comparisons between the numbers available. Performing a competitive analysis can make it easier to find out how well your company is doing in the marketplace. If a competitor can optimize costs and therefore increase profits and revenues then your company should attempt to learn how the competitor is doing this so that your company can catch up with them, and eventually surpass them. If you do nothing when those in your industry are doing better than you financially, you can fall behind and eventually be pushed out of the market.
Keeping updated on your company’s financial performance is incredibly important to know whether your company is reaching targets or not. Through analyzing financial ratios and marketing expenses, measuring stock turnover for your company, using technology to track your company’s finances, tracking LOB revenue and expenses, measuring profit drivers, and performing a regular competitor analysis, you can track whether your company is achieving your desired outcomes. If you are not achieving or outperforming your targets, you’ll be able to easily see where the bottlenecks are and overcome them to achieve desired growth levels.
– A keen writer covering topics such as Internet Marketing, SEO, Travel, Beauty and the such. He enjoys spending time with his two kids on his past time.