Why You Need To Keep Updated On Your Company’s Financial Performance
March 17, 2021
No matter what kind of business you run, accounting and bookkeeping will play a vital role in your company. Even if you outsource the task or hire a financial expert to do the job, you should still make an effort to stay on top of your finances. However, looking through balance sheets, cash flow statements, income statements, and all those financial documents can be overwhelming for anyone who’s not specialized in financial management. Be it as it may, it’s still a necessary task for every business owner to do, no matter how daunting it is. Here’s why you need to do to monitor your company’s financial performance.
Measure the Impact of Your Investments
Learning the basics of finance will help you in various ways. The most significant benefit you’ll experience is the ability to understand the impact of the efforts exerted on the company’s bottom line. One look at the company’s income statement should let you identify the direct expenses that are related to the revenue generated over a specific period.
More often than not, you’ll make the decision to invest certain resources or a specific amount of money to achieve your objectives. However, making investments should never be done on a whim, and you should always calculate the ROI of each investment you make. Staying on top of your company’s financial performance will help you evaluate the decisions you make and optimize future operations. Although a lot of decisions can only be evaluated after a relatively long period, analyzing the performance weekly, monthly, and on a quarter-basis will help you make better decisions.
As a business owner, there are a lot of tax obligations you’ll have to meet. Dan Blahut and Noah Hopton, the co-founders of Finvisor.com, explain that there are city, state, and federal taxes you have to meet on a monthly, quarterly, and annual basis. Moreover, you’ll need to be aware of the taxes concerning your employees, such as payroll, social security, federal income, and Medicare taxes, as well as local business taxes, state and local taxes, and other fees concerning licensure. All of these taxes are integrated into your financial statements. While these costs may be overwhelming, you can consult a financial expert to learn about the tax-saving opportunities you can exploit.
More often than not, real-life applications prove to be completely different than what was originally planned on paper. Your business plan must have included the budget allocation structure you’ve thought best, but, once you go into operations, you’ll realize there are many tweaks you need to do. You’ll never be able to make the difficult decisions to shut down departments you’ve previously thought vital to your business without the financial proof that they’re just not working. You may also find out that you need to allocate more budget to another department, if for nothing else but that fact that numbers recommend so.
Optimize Cost Structure
As an extension to budget allocation, being updated with your financial performance will help you track down the functions that exhaust resources unnecessarily. Once you look into the ROI of your allocated budgets, you should be able to figure which investments are paying off and which aren’t. You should also get a clear idea about the extra expenses you endure and find a way to optimize operations further. This will help you cut down unnecessary costs while reallocating them to more promising functions.
When you’re updated with the financial performance of your business, you’ll be able to share these insights with the department heads. When the managers are on the same page, you can ensure the alignment of all departments with your company goals and any strategic changes taking place in the company. Incidentally, financial performance is often the leading factor why businesses need to revise their strategies and objectives. You’ll also be able to share the financial progress with your team members. They’ll feel included and realize the impact of their contributions, which will motivate them to work better.
Report to Investors and Stakeholders
Finally, you can’t forget about your investors and stakeholders. They’ll be the first to dissect and analyze your financial statements and grind you for answers. You won’t be able to accurately answer their questions, much less update them on the progress, if you’re not updated yourself with the financial state of your business.
Being aware of your business’s financial performance will help you see the bigger picture more clearly. This clarity will help you analyze the performance of your operations better and identify the parts that be optimized. The knowledge you gain will help you make smarter and more effective decisions, which in turn, will improve the overall performance of all your departments.