Business People Need to Monitor These Indicators

Maintaining good financial management is crucial to a firm’s survival. Timely and informed decisions are much easier when responding to changing conditions in today’s business world.

Often due to lack of time or proper organization, many entrepreneurs only read their financial reports several months after the end of their fiscal year, when they become available. Such inattention will place a business at risk.

As a minimum, you should review your financial data at the end of every month and make a more complete analysis every quarter.

All goals you planned for at the start of your year should have been based on long-term strategic objectives. You must compare your performance to those objectives. If you are not meeting those ideals, examining your results will allow you to make adjustments to accomplish them. It may be too late if you don’t address the shortcomings until your year is done.

Keep these key points in mind when assessing your results:

1. Growth
   • From one year to the next, are sales and profit increasing?
   • Is the trend positive or negative?
2. Profitability
   • Are you making enough of a profit when you are comparing yourself to competitors or comparable firms?
3. Liquidity
   • Are you able to meet short-term obligations or not?
4. Leverage
   • Do you take advantage of borrowing facilities to function efficiently and spur growth?
5. Activity
   • Are company assets being managed effectively?

It is also crucial for companies to plan and scrutinize cash flow. You may be generating profit, but you might find yourself in trouble if there isn’t enough operating cash. Anticipate financing needs in advance to manage proactively. Waiting until you find that you don’t have the ready funds on hand could see the company in trouble. You may need to utilize outside funding for receivables, inventory, equipment, or even to hire staff.

Use your latest financial performance as your reference point and compare your results to similar companies in your industry. Any results that do not compare favourably can highlight areas you should concentrate on improving.

An example might be a gross margin that is lower than your competitors. This could indicate that your pricing model is out of step with industry norms or could result from imprecise costing.

Finally, some business people work on their gut feeling, but having the right information at the right time will help you make more refined decisions for your future success. If you do not have the time or wish to have a qualified professional help you monitor these key indicators, please contact our office.