5 Ways to Understand Your Firm’s Finances

Whether you’re just starting out in business or you’ve been running a firm for years, you’ll be aware that nothing is more important to your enterprise than making more money than you’re spending. This is the sword of Damocles that hangs over every business because there is only so long that a firm can continue operating without generating a profit. In order to get a grip on your incomings and outgoings and to be aware of your financial situation as you move through the quarters, this article offers guidance on financial management and visibility for small and medium businesses.

1. Apps

First up, it’s important to mention that apps can be incredibly useful in helping you manage your cash. They may not be able to break down your costs into granular detail, but they will be able to give you a real-time overview of your finances, your liquidity, and other important data that will help you make tough decisions about your business.

Many of the world’s new financial apps cater specifically towards businesses. They’re built to do a little of your accounting for you while forecasting the amount of cash that you will be due to pay in tax when the end of the financial year is approaching. Do a little research to understand which app will be most useful to you, providing visibility over your financial data that you haven’t enjoyed before.

2. Reports 

A deeper dive into your finances, usually done over a period of at least a month, can be done by creating a P&L report. However, what is a P&L report? Well, P&L stands for Profits & Losses, and these can be arranged and analyzed in a report in order to reveal where firms are losing money and where they’re generating the most profit.

There are two main reasons why a P&L reporting system can be useful for your firm. First, this is a reporting system that takes into account the profitability of different parts of your business. It’ll reveal which products or services are generating the most profit for the least cost, helping you plan and prioritize your delivery in the future. Second, by highlighting areas where you’re losing cash, these reports can also help you tighten up key areas of your business in order to reduce your overheads and thus increase your profits further.

3. Experts

There are two forms of financial expertise that you can bring to your firm. The first will work in-house, as a financial advisor, accountant or, if you’re a larger firm, a CFO. The second, and this is often preferable for smaller businesses, is the outsourced help. You might go to an independent or freelance accountant o run your books every month, or you might even employ the services of a consultant or agency to help you get to grips with your finances.

There are many benefits to having a human run your books for you, even though there are apps and programs that can also deliver this service. A human will be better at spotting where you can make improvements to your business. But importantly, they’ll also be aware of tax loopholes, business grants, subsidies, and other important financial information that can help save you money.

4. Classes

As a business leader, you should never stop learning. It’s your responsibility to ensure that you’re always working towards a new objective, be that transforming into a better manager for your people, or learning a new skill that you can deploy right away in your own business. In this case, taking a course in business finances could help you understand how and where to see cash.

These courses can be taken online as part of a remote course at a university. They can be taken in person, at night classes or similar institutions. You can purchase books on the topic to read in your free time, or you can subscribe to YouTube lectures about financial management. All of these options will help you become a more astute financial manager.

5. Tough Decisions

Sometimes, there will be financial decisions staring you in the face that are nonetheless difficult to take. For instance, you may be well aware that you’re paying too much to keep your staff on and that you really ought to let one member of staff go.

You might be suffering from the economic effects of the pandemic and the ongoing financial downturn, which may mean closing stores or reducing your service. Taking tough decisions is what great businesspeople do – and they should always be based on what you think is best for your firm’s finances.

Improve your financial understanding and the outlook of your firm, even in difficult economic times, with the five tips shared above.