Business owners may often experience the “pit in their stomach” feeling when they assess the financial stability of their organizations. Perhaps they are stressing over:
- Working within a budget
- Paying bills on a timely basis
- Collecting receivables in a timely manner from customers
- Having an appropriate cash surplus in the bank for that rainy day
- Being able to accrue capital for re-investment within the business
- Pulling out a reasonable salary
- Ensuring that the “gears and cogs” of the business are all spinning in the same direction and towards a common goal.
In this article, we’ll explore ways in which a business can get closer to a level of financial stability and its associated peace of mind.
Monitor and Analyze
There are times when an outside source such as a banker will let you know when there is a financial problem. And, while this type of notice is not desired, how do you address a problem or proactively make sure it does not occur again? There's a saying that you “can't fix what you can't see” and visibility is core to achieving financial stability.
A great place to begin monitoring is to compare a businesses’ financial metrics to industry averages. It's important to see how a business compares to other companies within its industry and revenue size. Averages (or metrics) for a $1 million (or less) company are much different than a $20 million company.
Maintaining a company scorecard of top-level metrics such as working capital or a Z score (which is an indicator of bankruptcy) or a debt-to-equity ratio is always a good practice and then regularly evaluating the trends of these business ratios over time.
Won’t QuickBooks provide this insight?
Accounting packages such as QuickBooks can do a great job of processing and handling the day-to-day transactions of a business. And, QuickBooks can produce a set of reports, however, it cannot assist with the interpretations or analysis of the implications of a businesses’ financial activity. Further, a simplified accounting package like QuickBooks will not typically track statistical accounts or be able to do calculations on dashboards. In addition, many of the transactions and calculations are handled by a traditional bookkeeper who are often not trained to interpret trends or how to fix or address an out of pattern financial activity.
Time and Expertise
Properly managing a businesses’ financial risk requires time and expertise. Business owners need to understand and assess the amount of time required to export, calculate, and prepare very basic reports and then interpret the data. This process can take multiple hours every week and takes away from the time of the entrepreneur/owner to run and expand the business and generate additional revenues.
Expertise plays a huge role not only in the preparation of reports but in assessing the implication especially in the context of the businesses’ industry and size. And, managing financial risk to operate within industry standards along with covenants established by lending institutions (banks.)
Telltale Signs that Help May be Needed
When businesses find that it’s exporting reports to Excel and then tailoring, reclassifying, and attempting to import to a dashboard, then it may be spending inordinate hours to create a sophisticated dashboard required to run a company. So, if a business finds that it is:
- Spending hours and hours changing financial reports,
- Manipulating data in excel to create the “right” report,
- Exporting data to Excel,
- Utilizing pivot tables to regroup data. or
- Formatting the data every week or every month to get the “right” information out of the system.
Then, the business has outgrown the current system that it’s using regardless of what it is.
Achieving Financial Stability
The team at Virtual Accounting Solutions (VAS) has enabled clients to have the tools and dashboard reports to readily and regularly monitor important metrics including cash flow, debt to equity, and collections. Additionally, VAS has provided performance cards on businesses’ dashboard to monitor available capital and borrowing base. These financial institution dashboards are particularly helpful in managing banking relationships to provide instant visibility whether a business is adhering to its bank covenants and, if they’re not, corrections can be made prior to month-end or whenever reports are due to banks. It’s invaluable to have the “heads up” and be able – with enough time - to plan so that there’s no surprises.
VAS recognizes that every business has unique characteristics and has developed tailored reports to address situations including multiple locations and where managers may have specific performance plans in place. We help clients build the reports they need in order to monitor location performance.
Peace of mind associated with financial stability can be achieved with the right mix of tools, technology, and expertise. Talk to the team at VAS to learn more.
We actively work together with you to make informed, confident decisions. Let us know how we can help you. Reach us at 518-459-6700 or at bstco.com.
