7 Ways to Whip Your Business Financials Into Shape

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Your money is your responsibility. The good news is that you don’t need to be a numbers whizz to increase your cash flow and build your revenue with these seven key financial management areas.

Do you know what’s happening with your money? Many business owners hire accountants to do the books and that’s a smart move (especially if you aren’t a numbers person), but it’s also no excuse to ignore your numbers.

The good news is that you don’t need to be a ‘financial fundi’ to have a firm grip on your company’s financials.

We’ve highlighted the seven key areas of financial management that you need to pay close attention to if you want to keep your business financially fit and healthy.

  1. Know how to read your financial statements

The problem: Not knowing how to read your financial statements can harm your business because you won’t be able to identify trends, successes or problems within your company.

The solution: Once you familiarise yourself with them, financial reports are not that hard to read. The secret is to pay close attention to the balance sheet, income and cash flow.

  • On the balance sheet you’ll see key metrics like the quick ratio, which is current assets divided by current liabilities and shows how financially stable the business is.
  • The income statement lists revenue, expenses and profit over a specific period.
  • Most important is the cash flow statement – this will tell you whether your company has more or less cash at the end of the month, and what’s available to pay the bills.

To understand more about your financials and how to build them, read our financial planning guide, Supercharge your start-up with a strong financial plan here.

  1. Have a budget and stick to it

The problem: Businesses need to make more money than they spend (this seems obvious, but high business failure rates tell us it’s an issue many businesses face).

The solution: Your budget is essentially a guide. It lets you plan and control what happens with your money, and it gives you a performance measurement for how well the business is doing versus your plan.

  • A detailed, realistic budget allows you to make buying decisions based on your solid understanding of financial data and planning – not on emotions or assumptions.
  • It ensures that the business is operating within its means, can overcome challenges, and is able to turn a profit.
  • It shows you how much capital is available, what your estimated expenses are, and how much revenue you can realistically expect.
  • By continuously referring to your budget, you can measure performance against expectations and keep your eye on the prize.
  1. Keep up-to-date cash flow statements

The problem: Cash flow is the single most important number indicating the health of your business. Without it, expenses can’t be paid and customers can’t be serviced.

The solution: A cash flow statement shows cash moving into the business and cash moving out – on any given day.

  • It allows you to create projections or forecasts.
  • Cash flow projections usually cover a 12-month period, allowing you to estimate the amount of money you expect to flow in and out every month.
  • It includes all expected income and expenses. 
  1. Monitor and measure your financial performance

The problem: Money is constantly moving in and out of your business. If you don’t know how much and where it’s going to or coming from, it’s impossible to manage.

“You can’t manage what you can’t measure.” Peter Drucker, business guru

The solution: Get comfortable with your financial statements and use this information to measure financial performance in comparison to past financial statements.

  • This will allow you to project your future revenue, expenses and cash flow.
  • It’s only by constantly gauging your business performance that you know what’s successful and what isn’t.
  1. Know what’s happening in your debtors’ book

The problem: Good credit control begins with knowing who owes you what. When you don’t know who your debtors are (customers who owe you money) or what they owe you, you can’t keep a firm grip on your numbers.

The solution: Debtors’ statements allow you to keep business accounts up to date as they provide an overview of all outstanding payments owed to you by your customers.

  • This information helps you prepare accurate and realistic cash flow projections.
  • How long your client has owed you money for – also known as debtor days – is another key metric. Making sure your customers pay you on time enables you to maintain a healthy cash flow.
  • You can also cut down debtor days. A smaller number, like 30 days, means more cash is made available in a shorter time frame. Long payment periods, on the other hand, such 45, 60 and 90 days, may require you to use credit to cover your expenses.

To find out more about collecting your cash on time, read our guide, Make sure your clients pay up with financial management systems that work

  1. Keep a close eye on sales revenue

The problem: How many sales you make is irrelevant if it costs you more to deliver a product or service than you can sell it for.

The solution: Understanding your cost of sale is a valuable financial metric for all businesses because it includes all the costs to make and sell a product.

  • Subtracting the cost of sales from your sales revenue reveals your sales margin, which is the amount of profit you make on the sale of an item or service.
  • Then there’s the sales-leads-to-close ratio. This measures sales efficiency, tracking how many leads, or prospects, actually made a purchase. Read our Marketing ROI Guide, How to calculate if your marketing efforts are making you money – or costing too much to find out more. This will help you identify which marketing methods generate the most sales, and which salespeople are worth their weight in gold.
  1. Set up a rainy-day fund

The problem: All businesses face unexpected expenses. These can often lead to debt, unless you have a cash cushion to cover yourself.

The solution: Yes, it’s easier said than done, but setting aside a stash ‘just in case’ is the best insurance for your business.

  • Imagine an unexpected financial crisis happens and you have no funds to help you see it through? The results could be devastating.
  • With a rainy-day fund, you can continue operations until you recover from the unplanned event.
  • A good way to start is to avoid leaving surplus funds in your day-to-day business cheque account – this is what banks refer to as a ‘lazy balance’.
  • Your money will work harder for you and earn better interest in a 30-day call account or similar. Check with your bank for best interest rate options.
7 Ways to Whip Your Business Financials Into Shape