When it comes to finances, many business owners focus on revenue, expenses, and profit – and rightfully so. But those measures don’t paint the full picture of the business. There are many metrics to track and targets to hit when it comes to your financial books that not only inform you on performance but can help increase the amount of money you make. When you expand the financial knowledge in your business, both with your own education and in hiring the right experts, your opportunities for growth and success increase.
Accuracy Is Key
Correctly stating your financial position seems like a no-brainer, but it’s not as simple as it may seem. Financial reporting can be complex and time-consuming to get right, especially when you’re less familiar with what you’re doing. There are standards that change, unique situations that pop up, and complicated rules to follow. When your business is equipped with someone who is financially literate, and even better, an expert, you’re in a significantly better position to address those instances with confidence and ease.
Plan for the Future
At a base level, your business’s finances will show what’s already happened: past payments, revenue for the prior month, etc. But when you truly understand the power your books hold, you can plan for the future as well. There are many different metrics that can be used to analyze performance and predict future performance. Someone with financial know-how can also create exceptionally accurate forecasts, which enable the business to better plan purchases and expected cash flows.
Make Better Business Decisions
Sometimes the easiest decisions to make are those that are fact-based. When you can rely upon your financial reports and data as facts, your business decisions are further supported. If, however, your financials aren’t trustworthy or if you don’t understand what they mean, your ability to tactically make decisions is hindered. Consulting a professional who understands your books well, or ensuring you have the financial literacy to be able to effectively leverage your books can be a game changer for the direction you take your business.
Prepare for Tax Season
While financials are critical to your business’s operations, they’re also used as inputs to your required tax filings. Your tax filings require significant preparation and organization, as financial reporting is not the same as tax reporting. It is also widely known that a mistake in your tax documentation is not something to take lightly – it can cause stress, issues, and even fines down the road. Preparing your books for tax filings without the financial knowledge or without someone who has expertise in the field can create significant risk for your company.
Financials Tell a Story
A balance sheet shows you what your business has for assets and liabilities; your income statement displays the company’s net profit. These are key financial indicators to track but there is an abundance of additional information that can be extracted from your financial statements that will give a more comprehensive view of the business. When you can trust your books and know what they are saying, you will have a greater ability to tell a richer story. Ratios, trends, and metrics can show you that a seemingly low-performing month (ex. low revenue) was actually very successful (ex. profit margin increased), despite time off for the holidays), and vice versa. The importance of having that kind of clarity on your business’s performance is immeasurable.
Financials for any business, especially small businesses, are important tools in fostering growth, validity, and success. Preparing your financial statements, the right way and reaping all the benefits that correct financials present is no easy task. Consider your company’s financial literacy and whether or not you might benefit from a professional helping to enhance your organization in that area. Whether you choose to educate yourself further in the world of finance or you partner with a financial expert, you will be sure to see the positive effects on your business.
