Numbers might look boring, but they sure do matter!
Your business accounts sheet can be a valuable ‘report card’ of company performance, containing indicators of where the business might be going wrong. It’s important to recognise that the numbers on a financial report are indicative of the business processes as a whole, so identifying weaknesses in your business is essential for ongoing improvement.
Weaknesses can be classified as any area in which your business is at a competitive disadvantage. With technological innovation and the increased use of real-time data, it’s now easier than ever to assess weaknesses by looking at the stats. Whether that be on a financial statement or internal audit report, the insights provided by numbers can be invaluable to the success of the business.
Here are 5 key areas to assess to uncover the weak points in your business:
1. Examine your taxes
If your business is paying more in taxes than the industry average, it’s a sign that your business could be failing to optimise tax deductions and reductions available in your region. Tax laws often change on an annual basis, so having a team member with a comprehensive understanding of regulations and requirements is fundamental to the success of your company.
2. Ensure you are receiving consistent return on investment
Is that $40,000 piece of equipment you bought generating enough profit to justify the purchase? Investments that aren’t making sufficient returns can be a key point of financial weakness; identifying these can ensure you’re able to make informed choices about potentially reallocating investment funds to more profitable areas.
The same goes for the return on investment in marketing – have you been spending without seeing results? Keeping an eye on stats such as user engagement and page visits can help assess whether your marketing investments are paying off, or if you need to consider mixing up your marketing and PR strategy or your target audience.
3. Profitability, liquidity and solvency ratios
Having strong profitability, liquidity and solvency ratios effectively minimises the risk associated with your business. Acquiring funds to expand can be incredibly challenging if the business is deemed risky, so identifying areas for improvement in these figures can strengthen your company’s ability to acquire capital.
This is particularly important if your business is looking to borrow money – assessing these figures will help in identifying whether borrowing is a viable option and what interest rates you should (or definitely should not) be borrowing at.
4. Cash flow
Having strong cash flow indicates that your business is in a good position to handle any future adversities or unexpected changes. Keeping a close eye on your cash flow statements can help you understand any weaknesses in changes in the value of inventory, payables and long-term debts.
Although it may seem contradictory, having a solid and steady cash flow overtime also increases your chances of getting a loan. In order to qualify, many lenders will want to check the business has a stable and consistent income. Strong cashflow will help you get the $$$ you need so that you can continue to fund and expand your business.
5. Employee statistics
Having a high employee turnover rate not only indicates problems with the business but also creates additional work for pre-existing employees, who are often forced to reprioritise in order to cover ex-employees work. Analysing employment statistics is an important step to understanding whether there are weaknesses at the core of your business.
If you assess these 5 key areas regularly throughout the financial year, and at the very least every quarter, you will be well on your way to improving the overall strategy and health of your business and taking over your competitors!