9 Tips on How to Monitor Your Business Financial Performance

by | Feb 20, 2020 | Accounting, Business Management, Capital Raising, Finance, Marketing, Online Business, Small Business Loans, Uncategorized

Assessing the overall performance of your business involves several criteria. You have to ask a lot of questions and they need to be answered with evidence and facts. Are there interruptions with the operation of the business? Where is it headed to? What is showing up as growth drivers and bottlenecks?

You can get the answers to these questions when you properly monitor your financial obligations and overall performance. Your business needs to have enough profits, strong sales figures, and regular cash flow for it to stay alive. It is important that you should follow through with your business’ financial performance from your accountant on a regular basis.

Here are a few tips on how you can monitor your business finances.

1. Essential financial statements

The most basic financial reports that every company should have are the balance sheet and profit/loss statement. They do not only help in indicating the performance of the business but they are statutorily required. 

They provide an overview of how healthy your business is in financial terms. In a nutshell, it could also tell you how the business is performing alongside your competitors.

2. Update your Aged Debtors’ Trial Balance

On a monthly basis, your accountant should update the aged debtors’ trial balance. This file lets the company keep track of the customers who owe them money. You should also look into irregular accounts and diligently follow up with the defaulters so you can at least get some of your money back.

3. Inventory records

Many businesses invest so much in equipment, machinery, and raw materials. These kinds of businesses should have the most accurate inventory records. It will properly give them an idea of how much stock was bought and how much was used for creating the final product. The inventory should also include how much of the materials went to waste or if any equipment was lost or broken at any point. 

This way, you can decide how much to purchase on the next batch and not waste money in over-purchasing raw materials.


4. Working Capital Statements and Financial Ratios

As a business owner, you should tell your accounting department to regularly put together a working capital statement together with periodic calculations of current and quick ratios. This will let the investors know how many assets they have, how many liabilities they have, and how many assets can be converted to cash.

5. Fund and cash flow statements

Cash flow statements and fund flow statements are important reports for a business. It simply tells the business how much liquid cash is pouring in. There might be a lot of those coming in that are marked as revenues but upon examining closely, they really cannot be converted to hard currency just yet. Remember, your business will only succeed if it runs with proper earnings.

6. Analyze your overhead

Upon reviewing your financial statement, you might find weak points that seem out of the ordinary. Go and check your overhead expenses. The rent, employee salaries, marketing expenses, and many more can just be a normal part of your financial statement or they can become a reason why your overall profitability is down.

7. Analyze your marketing expenses

Are you spending a big amount of money when it comes to advertising? Is it worth it? Are you getting the results you are expecting? Do you have other marketing channels to promote your business on? If so, how much do you spend to keep them running? These questions need to be answered so that you can assess the financial performance of your business.

8. Evaluate  your HR

The human resources-related activities can also become factors in your business financial health. Is the employee turnover ratio high? Your business could be spending more when it comes to new recruitments. Paying staff, recruitment agencies, and separation payments of departing employees can take their toll on your finances. You might also need to pay for the cost of training new employees. 

9. Do a competitive analysis

You should also compare your financial performance with your competitors to see how your business is faring. What are your competitors doing to control costs and increase revenues? 

It is still good to maintain a good money management strategy for your business even after monitoring your financial performance. Here are small day-to-day actions you can do that will surprisingly make your financial performance monitoring a whole lot easier.

  • Separate business and personal expenses. There are a lot of reasons why you should not combine your business and personal accounts. During tax season, you don’t want to get confused with your jumbled records and get into unnecessary tax issues. As with your personal expenses, you should also set a budget with your business expenses and stick to them.
  • Discuss with vendors before signing a contract. In some cases, you just need to dig a little deeper to get a good deal. When doing a transaction with a vendor or a supplier, try your best to negotiate for a better deal. 
  • Be on time with your bills. Just like your personal finances, you should also be on time when it comes to your business bills. Late payment penalties may look small but if you keep on doing it, they can certainly add up.
  • Understand how cash flows. You don’t really need to be smart in accounting but you have to understand how cash moves in and out of your business. This is important so that you understand why you’re saving money, why you’re trying to get a better deal, why you’re paying your bills on time, and why you’re monitoring your financial performance.

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