How to analyse and monitor financial performance in business.

All businesses have financial goals and objectives. So how can businesses make sure that they achieve set financial goals?

They have to analyse their financial performance. By analysing financial performance, organisations can gain a better understanding of how where they stand currently and can assess what they need to do to achieve their future goals.

Financial documents from your current Financial Plan that you could monitor and review include:

•  Sales forecasts versus actual sales
• Cashflow forecasts/ statement
• Profit & loss forecast/ statement

Forecasts are useful as a new business owner because you can compare your actual results with what you predicted. If you are doing better than expected then you can spend more. If you are underperforming, then you need to make some decisions on how to turn your results around.

Profit and loss projections can help you identify any areas such as pricing or costs that may need adjusting to improve your outcomes.

Cash flow statements, like a bank statement,  are what has already happened and you can analyse these, where forecasts are predictions of the future and need to be compared to actual results.

➡Review Knowledge Question 11

Other financial documents you could use are listed below.

Key Performance Indicators

Key benchmarks will set you measurable performance outcomes that you aim for to reach your financial goals.

Some common KPI’s to use are:

• Gross Profit Margin
• Net Profit
• Current ratio

Making Good Financial Business Decisions

Lack of liquidity or timely access to finance is typically a reason for business failures.Recognising how to manage and deal with unforeseen financial events is essential for every owner-manager.

The crucial elements of the financial decision-making process include

1.  financial decisions – choice between equity or debt funds and associated costs;
2.  investment decisions – choice of purchasing long term assets
3.  operating decisions to either reinvest profits back into a business and/or distribute profits back to the owners.

It is vital to plan for your business’s financial success and, when making decisions, always assess costs versus benefits and implied risks.

This is the time for owner-managers to make sound business decisions related to revenue sources, spending, saving, investing, and, if necessary, pivoting towards new business ideas.

Financial Indicators to Monitor

Proper financial management is crucial because it allows you to make timely, well-informed decisions in response to changing conditions.

Review your indicators every month.

➡Review Knowledge Question 2 & 3

Financial reports to gain information

Financial reporting and analysis is the process of collecting and tracking data on a company’s finances, including its revenues, expenses, profits, capital, and cash flow. Businesses use them to inform their strategic decisions and stay compliant with tax regulations.

Each of these financial KPIs is incredibly important because they demonstrate the overall ‘health’ of a company – at least when it comes to the small matter of money. These types of KPI reports don’t offer much insight into a company’s culture or management structure, but they are vital to success, nonetheless.

➡Review Knowledge Question 4 

Inventory/Stock Control

Inventory control, also called stock control, is the process of ensuring the right amount of supply is available in an organization. With the appropriate internal and production controls, the practice ensures the company can meet customer demand.

Inventory control enables the maximum amount of profit from the least amount of investment in stock without affecting customer satisfaction.

Inventory management is a higher-level term that encompasses the complete process of procuring, storing, and making a profit from your merchandise or services. While inventory control and inventory management may seem interchangeable, they are not. Inventory control regulates what is already in the warehouse. Inventory management is broader and regulates everything from what is in the warehouse to how a business gets the product there and the item’s final destination.

➡Review Knowledge Question 6

Collecting Monies owed

Positive cashflow is imperative to a successful business. If you choose to offer credit or invoice your customers, there will be a period of time that you are out of pocket because you have provided the goods or service but have not received payment.

A credit policy establishes guidelines and procedures to help you provide credit to clients who pay,  and protect you against clients who don’t.

Establishing a clear credit policy that outlines your payment terms, options and your “Debt collection” terms will reduce your chances of not being paid.

Setting up systems such as regularly reviewing your Accounts Receivable, automatically sending payment reminder notices and possibly hiring a collection agency should be considered in your debt collection terms and conditions.

➡Review Knowledge Question 7

➡Review Assessment 2- Task 3

write your own credit policy

Digital Accounting Software to help with Financial Management

➡Review Knowledge Question 12

Specialist support for Business

Professional advice and services can help you manage your business finances. Whether it is helping you get your financial records in order or helping you with reporting requirements, there are a number of services available.

➡Review Knowledge Question 8

Financial Legal and Regulatory requirements for Business

Find out what the legal and regulatory requirements are for your finances in relation to Australian Tax law.

➡Review Knowledge Question 9

Financial Policies and Procedures

Financial Policies & Procedures are the standards set by the business to ensure that financial processes are carried out correctly, reducing the risk of errors and disputes.

These policies and procedures may include credit policies, record keeping procedures, sharing confidential financial information, accessing financial information.

Document 4- Assessment 3- Business Plan Instructions

• Write your full name on the top of the first page “Participant name:”
• Attach a completed copy of your Operational Plan to be marked.
• Attach the completed parts of your Financial Plan that are requested.