To improve the financial health of a company, it is necessary to know how to assess the situation of certain indicators, such as cash flow. After all, the movement of a company’s cash indicates all the revenues and expenses inherent to the business. Of course, there are some parameters to be observed , as well as other measures to be taken.
When managing a company, you must keep in mind that financial management will be a real mission. So, the question remains: how can you prepare yourself to face the various tasks, challenges and turbulence that will come your way?
Next, learn the best practices for how to take good care of your business’ money and guide you on the path to financial success!
How important is it to assess financial health?
Investing in resources that help you assess your company’s financial health is essential for several reasons. For example, through constant monitoring, you can identify errors and make adjustments to improve your company’s finances.
Furthermore, this monitoring allows the company’s resources to be allocated effectively, ensuring greater returns and sustainability of the business in the medium and long term. In other words, through this monitoring, it becomes possible to choose the best investments to make the business profitable.
How to assess the company’s financial health?
When it comes to the money that moves a company, there are some indicators that should never be lost sight of. A good analysis at this point gives managers a more comprehensive view of the company . The ability to evaluate these indicators also ensures a better quality of the decision-making process. Check out each one of them!
Billing index
Yes, you need to keep an eye on the business’s revenue index. This indicator determines the progress of the business, that is, how many of them are being closed. Consequently, it also indicates the financial volume that has been directed to the company’s coffers.
The analysis of revenue also impacts the assessment of whether targets are met. If you have predicted that you will sell a certain amount of goods, but sales are below expectations, revenue will also be lower. As long as you are prepared to deal with this problem, you can implement plans B or C. This way, the company will return to the desired revenue.
Receiving deadlines
If revenue is on track, there is still something to consider: the time it will take for all that money to actually be available. After all, selling is one thing, and receiving the corresponding amount is quite another. Analyzing the collection times determines whether there is an unusual (or acceptable) delay in the company receiving payment for the product or service sold.
Extremely relevant to the financial health of the business, this indicator determines whether installment sales policies should be reviewed. Many stores have high turnover.
But when the manager checks the whereabouts of the money, he discovers that most of it is allocated to credit card installments, for example.
If there is no balance between cash and credit sales, the business is likely to get a few scares and “flirt” with the risk of bankruptcy. Seasonal promotions can save the company at times. But for how long?
Company debt
It is true that, many times, it is practically impossible to keep a business running at full steam with only the company’s own money. In these circumstances, the manager finds himself forced to take out a bank loan.
This procedure must be carried out with the utmost caution. Furthermore, the borrowed resources must contribute to increasing profits.
Otherwise, the company’s debts can snowball. Before taking out a loan, you should always analyze the impact of this action on the growth or decline of the business.
How to improve the company’s financial health?
If observed carefully and thoroughly, the indicators presented above will be crucial to the success of the business. However, there are still some crucial practices to maintain the good health of the company’s finances. Check out what they are!
Develop a good financial plan
Financial planning is the backbone of a company’s finances. Before starting any business, it is essential to determine the amount of money needed to sustain it. Again, you should consider your own resources to achieve this goal, not bank loans.
This planning includes the amounts to be received, the payments to be made and the consolidation of a good working capital. If well prepared, financial planning will save the company from many problems in the future, since without it, the manager may be exposed to a series of obstacles. Remember that, with planning, many unforeseen events become fully predictable.
As a manager, you may not feel completely comfortable evaluating the business and defining the best plan to adopt. In these cases, do not hesitate to seek the support of an accounting and financial advisor. Also, remember that adopting management software will make your company much more competitive than its competitors .
Create an emergency fund
There are some aspects that tend to compromise a company’s revenue. Just to mention two of these factors, let’s remember the constant and almost unpredictable financial crises. At this point, it is worth noting that they can drag on for several months in a row. Another important aspect is the drop in profits during certain seasonal periods.
In any of the above situations, your company could be in trouble. In this situation, avoid being overly optimistic about a supposedly promising future, as it will not always be so rosy. Be rational and create an emergency financial fund.
One way to do this is by investing in fixed-income funds. The important thing is that your business can, in the worst-case scenario, create a reserve capable of covering the costs and expenses generated for at least 3 months. This way, your company can remain stable — while you and your team seek new solutions in the face of certain turbulence.
Increase investments in the most profitable products or services
Deepening your knowledge of your business’s target audience may be what you need to achieve the desired economic growth. Strengthening relationships between the company and its customers makes it easier to offer the best solutions. This approach provides valuable information about the desires of consumers.
By getting to know its target audience better, the company can prioritize certain product lines when launching an advertising campaign, for example. In addition, it will be more aware of changes in its customers’ behavior.
In a society as dynamic as today’s, some interests can be quite ephemeral. It is up to each company to know how to deal with this in the best possible way.
Invest in a financial calendar
A financial calendar is an extremely useful tool for organizing your entire financial strategy in a chronological manner. It makes it easier to prepare an annual budget, helping you to closely monitor the company’s current performance.
Its use also facilitates cash flow management, anticipating cash inflows and outflows and indicating periods of scarcity. The calendar also ensures that the company meets its financial commitments, with the State or other agents involved, in a timely and efficient manner.
Track metrics
Monitoring metrics such as results, costs and customer satisfaction, for example, is essential for more objective management of your company. As the project grows, the complexity of operations increases and errors become more difficult to identify.
Therefore, by constantly collecting data and checking metrics, your team has access to objective, clear information that can indicate a more appropriate path.
By monitoring customer satisfaction metrics, such as Net Promoter Score (NPS), you can gain a clear perspective on the performance of your strategies and compare them to previous periods. This creates an environment for constant adjustments and improvements in your business.