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Monitoring your Financials

Many business owners and executives loath the act of reviewing the financials.
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Monitoring your Financials for Success

Many business owners and executives loath the act of reviewing the financials. For them, it’s the equivalent of visiting their doctor for a physical; it gets unhappily done once per year.

Fortunately, if done regularly, and prepared properly, the process does get easier and quicker. If you’re a larger organization you probably have an accountant and finance staff on hand, but for small or mid-sized companies this isn’t always an option. In these cases, having an outside accountant who is willing to go through your organization’s strengths and weaknesses, and provide advice (not always the case), or a very talented book-keeper with some analytical abilities, will be necessary. Shop around and don’t be shy about asking for a trial period or short-term contract. The rates do not tend to vary too much, but the service you get can.

  • Formally Forecast Target Goals
  • Make Use of % to Sales & Growth Ratios
  • Understand & Watch Your Cash-Flow

Tips to improve your business’s financial health.

Planning is bringing the future into the present so that you can do something about it now.”
― Alan Lakein, author

To be effective, the financials should be reviewed at a minimum of once per quarter and preferably once per month. You want to be able to make any necessary changes as quickly as possible, so the outcome is not a negative surprise. In addition, this is equally important if your business is experiencing high sales growth. High sales growth has a way of covering up other ills. I once worked with a large organization that prepared financial snapshots on a weekly basis, which was a real pain in the “you-know-what”, but highly effective.

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Formally Forecast Target Goals

Ask yourself where you want to be by the end of the month, quarter, and year. Have your accountant or book-keeper forecast these line by line on an excel spreadsheet or within your accounting software and compare the actual to forecast results on a regular basis. It’s one of those things that the more you do it, the more accurate the forecasts will become which allows the business the opportunity to make decisions and changes based on the results. If this is a larger organization you can also use these as the basis for department leads bonus or incentive plans.

Increase profit margin & efficiency
Capture a bigger market share
Efficiency of Operations

Make Use of % to Sales & Growth Ratios


These can be more telling than pure numbers. With respect to month-over-month % to sales ratios, you’re looking for trends, a consistent rise, or fall for over 2 months. Keeping in mind a significant decline in one line item could cause the others to rise relatively, as could rise or decline in revenue in company with heavy fixed expenses.

In terms of growth ratios, you want your expenses to be growing less than revenues, or declining more than revenues, depending on which direction they are going.

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Understand & Watch Your Cash-Flow

In my view, this is the least understood, yet most important financial statement. The cash-flow differs from the profit and loss statement in two primary ways: It does not include non-cash items such as depreciation, and it accounts for differences in timing for cash coming in vs. cash going out. It is important to understand that a company could show a profit on its P & L, but still struggle because cash is leaving quicker than it’s coming in. What you want to do in the case of cash-flow is to get the sales and accounts receivable into your bank account as quickly as possible, and pay your vendors on the due date, not before. Furthermore, in a lot of cases paying early to take the discount is less favorable than paying on the latest due date. You still will probably require a line of credit, at least for most businesses, but over time as you establish relationships you may be able to negotiate better terms with your vendors.

I understand that for many small business owners these tips don’t seem doable, but if you can find a great book-keeper with strong analytical abilities you can at least get very close to achieving this. Be mindful that this would give you an additional competitive advantage.
We hope these tips will get you thinking about how to best monitor your financial health in order to take your organization to the next level. Of course there are others, but these are the ones we encounter most often.