5 Financial Factors​ Business Owners Should Monitor Weekly

The 5 financial factors listed here each serve a different purpose in running a business efficiently. These factors keep you informed on the position of the company, its current financial strength and weakness. It is the key information that will guide you with your decisions, strategy and plans for the upcoming weeks.

Knowing what needs to be done and that requires a focus on helps you communicate better with your team. These factors represent your current performance and act as a preview of your short-term goals.

Fixing your short-term goals is the step to achieving your long-term goals. It improves efficiency within the business and addresses its weaknesses at an early stage. Improving the performance of the business on the go puts everything in perspective defining everyone’s role and responsibility.

Here are the 5 factors every entrepreneur should focus on every week:

CASH FLOW

Your cash flow is your current financial insight into the business. It tells you where you stand right now and projects the direction in which your finances are heading. A good cash flow projection accounts for all upcoming expenses; fixed, variable and conditional.

With a cash flow projection, you will understand when your company will face a financial struggle. It is a clear idea of your current position and how far it takes you. Cash flow projection is the important financial report to go over your position, testing sensitivity, making management decisions and planning for growth.

1- POSITION

Knowing your financial position opens the gate to further discussion from improving it to setting targets and planning for growth. You need to focus on always covering your expenses and your ability to do so will reflect in this projection. It is the reality of your current financials giving you insight on upcoming cash expenses. While your profit and loss statement may not account for major prepaid expenses, this should be covered in your cash flow.

2- SENSITIVITY

Every cash flow is sensitive. While a projection is based on estimates on when you will receive your payments this may however not be the actual case. It is important to look at the effects of delayed payments or any other unaccounted expenses can have on your cash flow. This tests the sensitivity of your projection and how reliable your business is on due payments versus its own finances.

3- MANAGEMENT

To make decisions on short term targets, payment terms or new investment all relies on your cash flow. It is your management tool for decisions. Whether your sales department needs to focus on hitting their target or your finance department needs to focus on timely payment collection or even your overall company expenses needs to be controlled, it can all be traced back to your cash flow.

4- PLANNING

Cash flow projections are used to plan future long-term investments. By monitoring it on a weekly basis you have immediate knowledge of your position and can make quick investment decisions for the business if needed. These investments could be as small as getting a new app that could help your team. The important thing is that you’ve taken a calculated decision.

5- OVERDUE PAYMENT

In all the years I have worked as a Financial Professional, I am still surprised when I experience an upfront or timely payment. In any other case, I’ve heard it all. From the cheques awaiting signatures to signatories not being in the country to pretending that they haven’t received an invoice, there are many different ways in which clients try to delay paying. And so, this has to be on your list of financials you need to look at on a weekly basis.

As we previously went over your cash flow, your cash collection is what keeps it steady. You may have a strong and healthy cash flow projection, but this can quickly change when you start facing delayed payments.

Knowing your overdue payments prepares you for a difficult conversation. In some cases, you may already be working with this client on another potential sale and this may be the time to address the issue.

It is also important to keep track of what your average payment cycle looks like. You may have a standard 30 days credit term in practice however this isn’t usually how long it takes for clients to pay. Your average payment cycle will be a better way to protect your collections in your cash flow.

Not to forget, clients who are not good at paying should be flagged and monitored. You should alert your sales team about them and take the required steps when working on new sales with them.

BUDGETS AND TARGET PERFORMANCE

Your targets and budgets are put in place for a reason. They are based on previous performances and is aligned to cover your expenses and generate a profit. Budgets keep your expenses controlled for the size of your business. It also accounts for new potential expenses. Targets are prepared based on 2 factors: the sales analysis your business follows and your budgeted expenses. For new businesses, however, your targets are based on your projected expenses.

Monitoring your target performance and budgets on a weekly basis keeps you focused on achieving your goals. If targets aren’t met, this has an effect on your cash flow. The same goes for your budgets when you start overspending.

When your targets aren’t being met and you start exceeding your budgets it is important for you to step in and take control of the situation before it gets out of hand. By monitoring this on a weekly basis you can control the situation immediately and identify what went wrong.

As an entrepreneur, you are also the lead business development employee of the company. You know the business and market more than anyone in your company. Coming up with the right plan to meet targets and sharing your strategy with your team is required to maintain stability in the business. It is important to understand that if you’ve budgeted for growth in the coming months or year, not meeting your targets affects your ability to implement your plans.

GROSS MARGINS

Along with your targets and budgets, it is also important to go over your gross margins. This factor also has an effect on your cash flow.

While you could meet your sales targets, you should ensure it earns the budgeted gross margin to cover your upcoming expenses.

If you haven’t already established a minimum gross margin on your sales, you need to set this. Find the relationship between your sales and cost of sales. If you find it difficult to do so then consult with a professional on this. This information is important when creating projections.

There are 3 ways to meet your overall financial performance target:

1- REVENUE

You can meet your revenue target and achieve your goal. But you need to look at your gross margin to ensure profitability.

2- INCREASING MARKUP

If meeting your sales target is difficult you could increase your sales markup. If you know what your cost of sales is you can add a markup to the price. This will increase your gross margin however it may have an effect on your customers and clients.

3- REDUCING EXPENSES

Although this may not influence your gross margin this method will help you meet your overall financial performance target. By decreasing your expenses, you can achieve your targeted net margin. You will have to take a closer look at each of your expenses and work out what is not required. Or in other words, cost-cutting.

INVENTORY

For companies dealing with goods, it is important to monitor your inventory on a weekly basis. While in an annual budget you predict your inventory purchases for each month, monitoring your inventory items on a weekly basis will avoid overspending. 

Keeping track of the quantity of your inventory will help you avoid over-purchasing. If you notice an increased quantity of an inventory item on a weekly basis with lower sales rates, you should reconsider your purchases.

If your lower sales rate inventory items require special storage or have other conditions, this can reduce your profits. Although one big sale could solve this problem it is better to monitor this figure every week. By doing so, this gives you an idea of what inventory items you need to purchase. 

From a cash point of view, any reason to avoid overspending or a potential loss is an achievement. You will better understand what items to purchase and how quickly they sell. This is a healthy practice that will also benefit your financial performance.

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