Business owners know they need to monitor their income and expenses. Many business owners learn how to monitor more detailed aspects of their finances through trial and error. This can be a costly and time-consuming learning experience. While a trusted financial advisor can be helpful in keeping business finances on track, it is important that business owners monitor their company’s financial performance so they can make informed decisions in response to current activity and trends. Here are 5 key financial indicators that business owners should be monitoring on a regular basis.
Many business owners look at growth on an annual or semi-annual basis. This habit should be monthly. Looking at sales trends regularly can quickly help to identify ways to increase sales in response to seasonal demands or decrease inventory for products that are not in season or are underperforming.
There are two important ways that business owners should examine their profits. Most obviously, business owners should regularly review how profitable their products and services are. By examining this on a regular basis, owners can identify which products or services to focus on and which ones to drop. Secondly, business owners should also compare their profits to similar businesses. This can be a great way to identify missed opportunities or adjust poor performing pricing strategies.
- Liquidity of assets
On paper, assets can contribute significantly to a business’s overall net worth. It is important that at least some of these assets are liquid and can be accessed in short order to meet unexpected or short-term financial obligations. Liquid assets can also be a tremendous resource for owners that want to make a financial investment back into their business.
Leverage is an important and often overlooked aspect of regular financial management. Leverage involves examining how a business is using financing to operate and grow. Regular consultation with a trusted financial advisor is critical to help business owners understand and capitalize appropriately on this type of leverage. Leverage can also be maximized by understanding how current opportunities and trends are affecting a business and responding accordingly.
Regularly reviewing the overall financial activity of your business can help give an accurate and objective picture of the current financial status. Business owners should look at the company’s financial activity on a regular basis to monitor spending, expenses, and income. Regularly reviewing financial activity can highlight areas where costs can be cut or investments can be made to improve the company’s overall financial standing.
Regularly reviewing these various components of your company’s financial performance helps to identify which areas can be improved in order to maximize profits and cash flow. Business owners who only do this once or twice a year are missing out on cost savings and improved sales.
Ken Wither is a Certified Business Intermediary and president of Acuity Business Group. Ken is based out of Calgary and Kelowna.