As the year begins to draw to a close, it’s a good time to consider the financial performance of your business. By assessing your finances, you can then discover what were the wins for your business and where you made your mistakes. You will also be able to make sure that you are able to ascertain the correct improvements and strategies for the next year. If you take the right steps here, you could ultimately gain your greatest profits and victories on the market and climb further than before.
Why Is Your Financial Performance Important?
You might be wondering why it’s important to dissect your business performance. If so, then it’s worth exploring the concept of Kaizen or “change for the good.” This is a management philosophy and it’s useful for evaluating your current financial performance as well as how you will improve in the year ahead.
The main aim here is to make sure that when you reevaluate your position next year, you’ll be able to celebrate a great victory. You will discover a solid ROI and the mistakes of this past year will have been effectively erased.
The key points of Kaizen are simple. Businesses should make continuous improvements in all areas and every process. Kaizen doesn’t instruct businesses to ignore mistakes or punish them. Instead, they should be discovered but only so the right steps to improve the situation can be taken. There’s no need to punish errors or issues with this philosophy because essentially all performance is subpar as you can always improve.
What Numbers Are Important To Consider?
When working to understand your financial performance, there are a variety of key numbers or indicators that you should consider.
For instance, you need to look at your operating cash flow. This will determine your ability to pay for routine operating expenses. Working capital or cash that is immediately available will be useful as well. You can calculate this by subtracting current liabilities from the existing assets.
There are also key comparisons that you need to make including LOB Revenue to Target. This compares the revenue of a particular line of business with your projected revenue. Ideally, the LOB revenue will exceed the target but this won’t be the case for all lines in your business. You should also compare your actual expenses against the amount that you have budgeted for. There are countless indicators that could be relevant and indeed vital. You should even look at customer satisfaction. It doesn’t matter how much money you are spending or losing if your customers are not happy with the service provided by your business.
Take Action to improve your Financial Performance
Once you understand the financial performance of your business, there are a variety of ways that you can take action. You can start by working to reduce expenses. Explore key areas of your business and pay particular attention to areas where you have exceeded your spending expectations. You can then work to make the necessary adjustments in these areas.
You should also explore the assets in your business. There may be assets that are no longer providing solid ROIs. If you sell these, then you can immediately gain increased operating cash flow. You can also consider resources in your business that have the potential to generate a new income for your company.
Don’t forget, financial performance will tie into decisions that you have made when running and managing your company model. You need to think about areas such as marketing. Determine whether an increase in marketing is required to ensure that you are able to achieve your revenue goals.
Set Budgets And Targets For The Following Year
There are numerous ways to set a budget and ensure that you have targets for the next financial year. This will allow you to make constant improvements you need. Modeling is a great starting point.
With modeling, you have a firm concept of the amount of revenue your business is going to generate over the next year. You will be able to understand the profits and you will then be able to effectively plan for resources that will be required. For instance, you might find that you are forecast to gain £500,000 in profits next year. However, your total costs could amount to £600,000. This means that you will need to find a way to generate the extra income required. By creating a budget, you will be provided a clear strategy that you can use to achieve your business goals and hit the right targets.
Planning will be essential here. You need to create a detailed and comprehensive plan for the upcoming financial period. Make sure that you are constructing a budget around particular financial objectives and then working to achieve these. You need to plan different goals around the budget and the forecasted revenue that you already have in place. This will ensure that you are effectively managing the future costs of your business based on your expected performance.
Finally, you should consider the impact of control on improving your business performance. It’s true to say that employees should not be tied down based on the financial requirements of your business model. However, they should be aware of your financial objectives. You can then make sure that employees are working towards the same goals for growth and a healthy financial performance. You can set employees on the right path to reach the targets you need overall in your business model.
It can be difficult to both understand and learn from the annual financial performance of your business. The key performance indicators can be tricky to comprehend and work with, particularly if you don’t have the right tools or software. If you make mistakes here, you will also have a forecast that does not provide the benefits you require. That’s why if you would like help from an accountant contact Maple.
We’ll conduct a financial strategy review with you and ensure that you are on the right path to gain the right benefits, making the key improvements that your company needs. Click here to claim your FREE financial strategy review