With business comes the need to understand numbers. They're the bread and butter of growing a successful company but for many the prospect of crunching numbers can be unnerving, to say the least. If you flunked math at school and the sight of a spreadsheet sends chills up your spine, don't worry! There's a vast range of accounting tools that you can use to make mastering the figures as easy as pie. Continue reading to find out what steps you can take to get a better understanding of your business' financial health.
Financial Statements
In order to keep on top and be in the know you'll need to check your finances regularly. The best way to capture a snapshot of your current financial standing is to use a balance sheet, also known as a financial statement. You may be wondering; why is the balance sheet important? Because it's an invaluable tool that gives you a clear picture of your net worth at any given time. By listing your assets and liabilities it cleverly calculates owner's equity which demonstrates whether you're on the right trajectory in relation to your business plan. What makes financial statements so special is that you can utilize them as and when you need to, no waiting around for quarterly or annual statements. This allows for warning signs to be spotted early and changes and adjustments made as soon as they are needed. It's this proactive approach to finances that can make the difference between sinking and swimming.
Key Performance Indicators
Setting realistic yet ambitious key performance indicators, commonly referred to as KPIs, is a great way to measure progress towards financial goals. In a world where data is key, setting these benchmarks will allow you to gather concrete evidence and quantify progress towards outcomes so you can evaluate them effectively. Common financial KPIs include working capital, operating cash flow and gross profit margin. All areas of interest when it comes to assessing your business' financial landscape. When goal setting, in any sector, it's important to set achievable outcomes. Remember the SMART acronym from school? If not, here's a reminder. Your objective should be specific, measurable, attainable, realistic and timely. Failure to consider these key points can lead to unachievable goals which only cause disappointment and low morale.
Invoicing Tools
With the rise of ecommerce came the invoice. It's hard to believe that there was a time when cash payments were a clients only option and manual book keeping was used to keep track of transactions. With the changing of the times came invoicing software which revolutionised the way business' documented their cash flow. Not only does this tool increase efficiency and productivity but it's a great way to assess the financial health of your company. Invoicing software gives you information about your cash flow at the click of a button and when it comes to forecasting this comes in pretty handy. Accurately predicting your profitability with data gathered from your invoicing software allows you to stay ahead of the game and make adjustments where necessary.
Summary
When it comes to the financial health of your business, initiative and proactivity are key to success. Using these tools will allow you to stay in the loop when it comes to cash flow and net worth meaning you can adapt in line with your progress to make the most of all your hard work and dedication.
