Importance of Monitoring Financial Performance for Businesses

Rick Johnson
August 17, 2022
|
5
 Mins Read

In order to assess the performance of your business, there are many critical questions that need to be answered. Is the business running smoothly? Is it successful, or is it failing? What part of the operations setup acts as bottlenecks, and what parts are acting as growth drivers?

The answers to all these questions lie in regular financial monitoring of the business. Without adequate profits, a regular flow of cash, and strong sales numbers, no business can be successful. That is why the business owner or senior management should ask for regular reports from the organization’s accountants in all these areas.

10 Ways to Monitor Financial Performance for the Organization

1. Preparation of Key Financial Statements:

The basic reports that every company needs to produce are the balance sheet and the profit/loss statement. They are not only vital indicators of the performance of the business but they are also required statutorily. They give an overview of the financial health of the business, and in a nutshell, tell the owners everything that they need to know about how their enterprise is faring.

2. Preparation of Aged Debtors Trial Balance:

Every month, an aged debtor's trial balance should be prepared, so that the company can keep track of all the customers who owe them money. They can keep track of irregular accounts and follow up diligently with defaulters to get back their money.

3. Preparation of Inventory Records:

There are many businesses that invest heavily in machinery, equipment, and raw materials. They should maintain accurate inventory records. It will tell them how much stock was purchased, how much was used for making the final products, how much of it went waste, and whether any equipment has gone missing at any point in time. It will tell them if they need to purchase more raw materials and enable them to calculate input/output ratios and stock turnover ratios.

4. Preparation of Working Capital Statements and Financial Ratios:

Businesses should ask their finance teams to put together regular working capital statements and periodic calculations of current ratios and quick ratios. This will tell them how many assets they have, as compared to their liabilities, and how many assets they can convert quickly to cash.

5. Preparation of Fund and Cash Flow Statements:

Fund flow statements and cash flow statements are vital reports for a business that tells them just how much liquid cash is coming into the business. There are many receivables that are marked as revenues in the balance sheet, but on closer examination, they reveal that they are some way off from being converted into hard currency, and a business can only run with proper earnings, not notional ones.

6. Analysis of Overheads:

Merely preparing financial statements is not enough. The business needs to go beyond that and look for hidden messages in the numbers that point out weak areas. Check the overhead expenses, like rent, salaries, marketing expenses etc. Are they under control, or are they bringing down the overall profitability of the company?

7. Analysis of Marketing Expenses:

How much money is being spent on advertising? Do the returns justify the expense, or is it merely an unwanted cost for the company? How much money is being spent on other marketing avenues, and how many leads are being converted into proper sales?  These questions need to be answered to assess the financial performance of the business.

8. Analysis of HR:

Human resources-related activities should also be monitored. What is the employee turnover rate? If the employee turnover ratio is very high, then the company could be spending a lot of money on new recruitments, payments to recruitment agencies, and separation processes of departing employees. The cost of training new employees and making them capable can sometimes be a burden on the company.

9. Creation of Dashboards:

It is also vital that the finance team prepares daily, weekly, monthly and yearly dashboards to keep all stakeholders informed on the financial progress of the company. Trend analysis should be done regularly. How are the financial indicators faring as compared to last month or last quarter? What are the factors that have played a role in their increase or decrease?

10. Competitive Analysis:

Financial indicators of the company should be compared with those of competitors so that they know how they are faring. Maybe their competitors are able to control costs and increase revenues in ways that this business had not thought of yet. And if that is the case, then they need to learn quickly and catch up with the rest of the industry.

In conclusion, monitoring of financial performance plays an important role in ensuring that strategic decisions are taken on a timely basis and the growth plan of the business is adhered to. Accurate financial reporting and financial analysis have a significant contribution in this monitoring activity and hence, should be given sufficient attention by the enterprise.

Related Blogs

Top 6 Accounts Payable Automation Trends to Watch in 2023
Top 6 Accounts Payable Automation Trends to Watch in 2023

Accounts payable automation trends drive efficiency & accuracy in financial processes. Discover top AP automation trends here.

September 21, 2023
Accounts Payable (F&A)
Top 5 Best Practices in Accounts Payable
Top 5 Best Practices in Accounts Payable

Transform your Accounts Payable operations with our expert insights on the five best practices that matter and unlock financial success.

August 28, 2023
Finance & Accounting
What Is the End-to-end Accounts Payable Process?
What Is the End-to-end Accounts Payable Process?

Dive into our guide on end-to-end accounts payable process & know how each stage contributes to accurate transactions.

August 28, 2023
Finance & Accounting
7 Accounting Best Practices For Businesses
7 Accounting Best Practices For Businesses

Explore 7 proven accounting best practices for businesses to navigate the financial landscape with confidence and realize growth and stability.

June 26, 2023
Finance & Accounting
4 Common Accounting Challenges and Solutions for Businesses
4 Common Accounting Challenges and Solutions for Businesses

Discover the 4 most common accounting hurdles businesses face. Know how to overcome the hurdles and streamline processes.

June 19, 2023
Finance & Accounting
Top 10 Benefits of Bookkeeping for Small Businesses
Top 10 Benefits of Bookkeeping for Small Businesses

Drive financial excellence for your business. Explore top 10 benefits of bookkeeping that empower Small Businesses to Navigate Challenges

August 7, 2023
Why Are Financial Reporting Important for Small Businesses?
Why Are Financial Reporting Important for Small Businesses?

Financial reporting gives you an overview of expense and profits. Learn how small businesses can use it to thrive.

September 12, 2022
Finance & Accounting
Latest Accounting Trends in 2023 | Future in Accounting
Latest Accounting Trends in 2023 | Future in Accounting

The shifting sands of accounting trends can make accounting difficult for your business. This blog tells you the accounting trends of 2023.

October 11, 2022
Finance & Accounting
An Ultimate Guide to Accounts Receivable Turnover Ratio
An Ultimate Guide to Accounts Receivable Turnover Ratio

The AR turnover ratio assesses a business's efficiency in collecting outstanding payments. Learn how to measure and improve it.

October 4, 2022
Finance & Accounting

Related Services

Enquiry With Us
Enquire with Us

Enquire with us

Fill out this form to get in touch with our expert team.

Oops! Something went wrong while submitting the form.