Handling your business finances can be overwhelming for many people, but it’s an important part of running a business. You can’t grow if you don’t know where you are right now or how to improve your processes, which takes financial visibility.
Some business owners understand that financial visibility is important, but they may not know what it takes to get there or how to implement a strategy to achieve it. Regular financial analysis and clean, high-quality data gives you key insights into your business to make strategic decisions. Here’s how you can achieve financial visibility.
All businesses need financial visibility, but it’s even more crucial if you have an S corp or sole proprietorship in California that comes with specific tax and reporting requirements. You have to know where your business is with income, cash flow, and other key factors that determine your financial health.
Businesses often operate without full knowledge of their business’s finances or cash flow, which could mean you’re only months – or even weeks – away from insolvency. Getting financial visibility gives you a comprehensive view of your current cash position to prepare for opportunities to adapt to negative market shifts.
The first step is learning where your business is right now. Consider these questions?
- Do you review your income statements, balance sheets, and cash flow statements regularly?
- Do you understand the data and how to use it to make decisions about your business?
- Is your data clean, relevant, and timely?
- Are your reports working off of the most recent and relevant data? Is it complete and accurate?
- Do you have the level of detail to make informed decisions? If not, do you know how to get it?
There are several financial documents that are important for your financial visibility, including:
- Your balance sheet (also known as profit and loss)
- Your current and non-current assets and liabilities
- Your current ratio of assets and liabilities
- Accounts receivable aging report
- Your book value
The more information you have, the better you can understand your financial position. You need clean, quality data as well as a true understanding of what it means for your business.
Ready to get a big-picture view of your business finances? Here are some steps to improve your financial visibility:
Data is a key aspect of your financial visibility. You will use your data to make your business decisions and prepare for factors that affect your cash flow or opportunities. If you don’t have systems in place to capture your expenses, monitor cash flow, and track financial metrics, now is the time to start.
You should also make sure your data is high quality. Some accounting platforms, including real estate accounting software and similar solutions, have features to ensure quality data – but not always. If you’re working with incomplete, poor quality, or vague data, you won’t have the information you need for informed decisions.
Even if you have systems in place, you could still be vulnerable to blind spots that affect your financial visibility. For example, if you allow employees to make business purchases for reimbursement. When the time comes, you could end up surprised with a bunch of expenses that you didn’t know about.
Data analysis requires the most accurate and timely data you can possibly get. If you have to look back weeks or months to get your expenses in order, you’re working with data that may no longer be relevant or useful.
Eliminate all these gaps by reducing the time between transactions and analysis. Then, you can understand your business spending when it occurs, rather than playing catchup and overpaying on your taxes.
Manual processes are a big drain on your business. They waste your staff’s time, increase the possibilities of errors, cost money, and create barriers to financial visibility.
Accounts payable is a department that often suffers from manual processes and wasted resources. Invoices are prepared and coded manually, sent to the approval process, then payment is initiated. It’s a tedious process with long periods between invoicing and payments, leading to not only wasted resources on the front end but many delays in when you have money coming in.
Adopting automation helps you remove unnecessary manual processes to reduce your cost, streamline the process, and reduce errors – not to mention freeing your staff for other important tasks. For financial visibility, automation ensures that information is processed in real time, helping you capture the most current data.
Financial visibility can involve everyone in your organization, giving you a comprehensive view across your business. Your team members need access to data for informed decisions, however, which can be challenging with information silos.
Sometimes, there are huge barriers that hinder your team, waste time, and limit the data access. Modern solutions can help, but may actually make the situation worse in larger organizations. If you find that your current solution isn’t serving your needs, consider upgrading to something with visibility features designed to support collaboration.
Key performance indicators (KPIs) and metrics are important for evaluating your performance. Pertaining to finance, some of these include debt-to-income ratio or profit margin. But no matter how valuable, you can’t view your metrics and KPIs in a vacuum. They need to be put into context to understand how they affect your business, especially with financial figures.
Data management tools offer features that can segment different departments, customer segments, products, channels, and more, ensuring that you have comprehensive, contextualized data. You have everything you need for actionable insights that help your business.
Achieving financial visibility isn’t always easy, but it’s worth the future payoff. By understanding where you are now and where you want to be, you can build a foundation to achieve and maintain financial visibility moving forward and truly understand your business’s standing.
Author Bio: Name: Shahar Plinner
Shahar is a tax and accounting expert with over 20 years of experience in the field. He is an entrepreneur and known as The Tax Guru on the west coast. Shahar moved to Seattle from Israel and founded, scaled, and sold a leading tax and accounting firm in the Seattle Metro area.
Over the years, he served thousands of business owners and perfected the playbook for self-employed tax strategy. That’s why he founded Formations, to make sure the self-employed never overpay on taxes again.
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