Five Financial Metrics That All Business Owners Should Track

 Five Financial Metrics That All Business Owners Should Track

Being able to respond to changing situations with prompt and informed judgments is made possible by practicing proper financial management.

Interestingly, most business owners don't check their financial reports until the financial statements are published, which is usually toward the end of the year or a few months later. This lack of concentration, according to George Henao, a BDC business consultant with expertise in financial management and strategy, is endangering his company.

Every month, review your indicators

According to Henao, you must exercise discipline in examining financial data at least once a month and doing more thorough analysis once a quarter.

You want to assess how well your business is doing in relation to the goals it established at the start of the year, which are derived from a long-term strategic plan. Then, in order to achieve your goals for the year, you make modifications as required.

"It's important to make decisions early on; if you wait until the end of the year to address problems, it may already be too late."

Five important markers

Key financial indicators, according to Henao, come into the following groups:

Growth: Are your earnings and sales rising or falling annually? Exists a pattern?

Profitability: In comparison to other businesses of a similar kind, is yours producing a sufficient profit?

Can the business pay its short-term debts? How liquid is it?

Leverage: Can the business get funding for operations and expansion?

Activity: Are you successfully managing the assets of the company?

Henao adds that it's critical for business owners to forecast and track cash flow. When a business doesn't have enough money to run, even one that is prosperous might easily run into problems. Therefore, in order to run your company proactively, you need be aware of your finance requirements in advance.

"If your company is expanding, you'll need funding for things like inventory, machinery and equipment, accounts receivable, and hiring additional staff. You are endangering the business if you wait until you need the money. Are."

Compare your financial results to others

Henao advises business owners to assess their company's financial performance against that of other firms operating in the same sector. Results that are below average might point to areas that need work.

For instance, poor pricing based on an inaccurate cost measurement may be indicated by a low gross profit margin. You will most likely need to boost pricing, cut expenses, or do both in order to remedy the issue.

According to Henao, "entrepreneurs frequently act on intuition." "However, timely access to pertinent information will enable entrepreneurs to make better informed choices.”