Got a Good Grasp on Your Finances?

Got a Good Grasp on Your Finances?

As a business owner, it’s never been more crucial to have a good grasp on your finances.

For many businesses, priorities have changed, customer behaviors have mutated. As a result, revenue streams have had to evolve and pivot in order to create a viable business model.

To track, monitor, and drive your financial performance in this new business world, it’s increasingly important to have a handle on your key financial reports and metrics.

Getting a grasp on your finances

In the past, extra cash in the business may have been seen as a surplus to be spent. However, recent years have shown us that having these reserves is essential for businesses’ survival and long-term health.

To truly be in control of this cash, it’s vital that you can dip into your accounts, financial reports, and dashboards and ‘see the genuine story’ behind your financial position.

So, what are the key reports to focus on? Let’s take a look:

Budget – your budget is the financial plan that’s tied in with your strategic plan. In essence, the budget approximates the money it will take to attain your key strategic goals. Also, it approximates the revenue (income) and profits you hope to make during this period. It’s a benchmark you can use to measure your actuals (historic numbers) against, allowing you to see the variances, gaps, and missed targets over a given period.
Cashflow Statement – a cashflow statement shows the flow of money into and out of your business. Understanding these cash inflows and outflows in detail allows you to manage this ongoing process. Aim for a ‘positive cashflow position’ – where inflows outweigh outflows. In this ideal favorable scenario, you have enough liquid cash in the business to cover your costs, fund your operations and generate a profit.
Cashflow Forecast – forecasting allows you to take your historic cash numbers and project them forward in time. As such, you can see where the cash flow holes may appear weeks or months in advance. That gives you time to take action, whether it’s increasing your income stream, reducing your underlying costs, chasing up unpaid invoices (aged debt), or going to lenders for additional funding.
Balance Sheet – the balance sheet shows you the company’s assets, liabilities and equity at a given time. In a nutshell, it’s a snapshot of what the business owns (your assets), what you owe to other people (your liabilities) and what money and profits you currently have invested in the company (your equity). The balance sheet is helpful for seeing what stock and equipment the business owns, how much debt (liabilities) you’ve worked up, and what the company is actually worth.
Profit & Loss – your profit and loss report (P&L). Your P&L gives you an overview of the company’s revenues, costs, and expenses over a given historical period of time. Whereas the balance sheet is a snapshot, your P&L is more like a moving video. It shows you how your finances are progressing by demonstrating how revenue is coming in, and costs/expenses are going out.

Talk to us about accounting and financial reporting for your business

We’ll run you through the key reports in your accounting software, which can help you to get a good grasp on your finances, track performance, take action, and prepare your company to survive the new business normal.