When assessing the financial performance of your business, there are many critical questions that need to be answered to help reassure the business owners that the company is in a healthy and stable position. Is the business running smoothly? Is it successful, or is it failing? What parts are acting as growth drivers?

In order to answer to these questions, it’s important to conduct regular financial monitoring of the business. Without sufficient profits, a daily flow of cash, and strong sales numbers, no business can be successful. That’s why the business owner should ask their finance team to produce regular reports in all of the areas listed below.

Preparation of Cashflow Statements

Vital reports, such as Cashflow statements and forecasts, present details around just how much liquid cash is coming into or going out of the business. Businesses often trip up from thinking receivables are current, but upon closer inspection, they can also reveal that they’re some figures way off from being converted into hard currency, due to errors, customer liquidity, poor credit management etc. Similarly irregular payments such as quarterly VAT and annual corporation tax can get overlooked. This is not your money so ideally put it in a deposit account and do not use it to fund the business.

Analysis of Overheads

Just preparing financial statements is not always enough to track a company’s financial performance. The financial controller needs to go above and beyond to properly analyse the numbers and identify potentially weak areas or areas of opportunity. It’s important to thoroughly check and regularly review the company’s overhead expenses, like insurance, salaries, contractors and marketing expenses, to ensure they’re under control and are not bringing down the overall profitability of the company.

Preparation of Working Capital Statements and Financial Ratios

The financial controller should always try to put together regular working capital statements and periodic calculations of current ratios and quick ratios. This will help point out and present the data to the business owners, showing them how many assets they have, as compared to their current liabilities, and how many assets they can convert quickly into cash. Trending these over time also gives an early warning of possible difficulties.

Creation of Dashboards

A good way of keeping track of a businesses financials is with the use of dashboards. The finance team can prepare monthly, quarterly and yearly dashboards to keep all stakeholders in the loop on the financial stability of the company. Activities like running a trend analysis report should be done routinely, with questions like – How are the financial indicators faring compared to last month or last quarter? What are the key factors that have played a role in their increase or decrease.

Preparation of Key Financial Statements

Regular reports that every company need to produce are the balance sheet and the profit/loss statement. An unreconciled balance sheet account can often hide a significant profit impact and is something many inexperienced finance people do not consider. They’re not only vital indicators of the performance of the business, but they are also required legally and annually. Both of these key financial statements give an overview of the financial health of the business, and in short, tell the business owners everything that they need to know about how their company is progressing.

Preparation of Inventory Records

Many businesses invest heavily in machinery, equipment and raw materials. Companies should maintain accurate inventory records to help assist the finance team in producing accurate financial data. This will help to explain and break down how much stock was originally purchased, how much was used for making the end product, how much of it went to waste, what profit or loss was made and to see whether or not any equipment has gone missing at any point. They will help the financial controller purchase more raw materials at the right time, and minimise the amount of cash required to be put aside for stock holding.

Competitive Analysis

Financial indicators of the business should be compared with those of competitors, so that the finance lead can demonstrate to the business owners, how they are performing against their main competition. Maybe the competitors are able to govern costs and boost revenues in ways that this business hadn’t thought of yet. And if that is the case, then the company will need to adapt quickly and plan strategically in order to catch up within their industry.

Find out if your business is showing signs of poor financial management by taking our free financial management healthcheck. You’ll get a quick spot check and receive your results via email. As a follow up, one of our experienced EFM Experts will get in touch to discuss the opportunity of a one to one consultation.

Want to find out more about how EFM’s financial services? Our team of experienced financial controllers and directors can help to support your company’s financial strategy. Get in touch today or call 01582 516300.