Haven’t quite got your head around the financial numbers in your business? Or sick of a silent room and nodding heads when sharing financial reports with your senior leaders?
While you are setting goals for 2019, here are some of the key components to the financial side of your business that you and your senior managers should aim to understand and put into action by the end of the year.
1. Cash flow forecasting
You need to be as accurate as you can when assessing the cash that flows in and out of your business. Cash flow is the backbone of any business, and it is essential that management can predict what is going to happen to ensure the business can survive. Forecasting cash flow will mean you can plan ahead and take advantage of any cash surpluses, but also ring alarm bells if there are any potential risks on the horizon.
2. Working Capital Cycle
The Working Capital Cycle is the amount of time it takes to turn current assets and current liabilities into cash. Business owners need to be able to calculate this cycle as it reflects the ability of the organisation to manage its short-term liquidity position. The shorter the Working Capital Cycle, the faster the company is able to free up its cash.
3. Interpreting financial ratios
Although ratios mostly report on past performance, understanding these is vital as they provide a snapshot of the company’s financial position, allow you to forecast and plan more effectively and indicate any potential problem areas. You can also compare your ratios to other businesses in your industry. These ratios aren't complicated - they are comparisons of information from your balance sheet and income statement, but they do help determine the financial health of your business.
4. Building a financial growth plan
Think about the future. It's important to look back and reflect, but by looking ahead you can identify growth opportunities, avoid risks, and project where your business is heading. This plan is for your benefit, and should be considered a guide to running your business.
This blog post is written by Derek Young, who is a business coach at The Icehouse. Derek is a seasoned and innovative sales and business leader with broad experience across B2B & B2C. If you'd like to better understand the finances behind your business, contact him to organise a free, no obligation chat.