Running a business day to day can be stressful enough, but if the business’s finances are always murky due to lags in reporting or missing information, the stress can become extreme. Getting control of key business data can help keep you from feeling like you are managing in a haze.
Improving control of your company’s finances can often be achieved by focusing on the data behind a few key metrics. Besides making it easier to meet basic requirements, like payroll and accounts payable, getting the data behind useful financial metrics entered quickly and accurately can provide additional benefits. For example, lenders, and large customers often want to see certain financial performance targets are met or maintained to continue the business relationship.
Your Net Cash Available is one of the easiest financial data points to access and keep up to date. Being able to subtract current outstanding obligations from available cash should be a number that you or your accounting department should be able to calculate practically on demand.
Businesses that struggle to keep this metric up to date are usually behind on recording accounts payable or have not developed a cashflow calendar to track trends in revenue and expenses. If your business has more than a year of financial data, you should be able to develop a historical view of your cashflow as well as a projected cash flow based on anticipated changes in your business.
While profitability is a major concern for just about any business, Operational Efficiency is a better number for businesses to track on an ongoing basis. While the general use of operational efficiency is to measure how efficiently your business is using its resources, from a financial perspective this means mostly focusing on accounts receivable turnover and inventory turnover.
The data needed to be able to calculate operational efficiency is also foundational to the calculation of net cash available. So, working on the timely and accurate recording of accounts payable and accounts receivable will help you improve the utility of two critical financial metrics.
Liquidity shows whether your company has the ability to generate enough cash to pay all of its cash expenses. The Current Ratio calculation, which divides current assets by current liabilities, measures your business’s ability to cover short-term obligations with cash and current assets. A ratio under 1 indicates that a business has insufficient liquid assets to meet such obligations. A value above 2 indicates a more appropriate level of liquidity.
Just like the other two metrics, measuring liquidity requires basic accounting data to be recorded in a timely and accurate manner. Spending some time examining your accounting practices can result in not only a clearer financial picture but also more financial opportunities.
If digging into your financial data sounds daunting or something you don’t have the time for, give Triple Helix a call. We specialize in helping companies organize data more effectively, access it more easily, and analyze it more thoroughly to help improve business decision-making. Contact us for a risk-free consultation.