No matter how large or small a company happens to be, there tends to be one major concern held across the board—finances /money. A business can only succeed if it eventually sees a profit, and for small business owners, knowing what the road ahead looks like based on current financial information can be easier said than done. Even worse, however, is to ignore your small business financials and simply hope for the best—an exercise in futility if there ever was one.
So, what’s the best way to learn from analyzing your small business financials? While there’s really no such thing as a “one size fits all” approach, you can glean so much useful information more easily than you might think.
Become an Expert on Financial Analysis
As tongue-in-cheek as it may sound (and it is), you owe it to yourself to become a complete and total expert on financial analysis. That is, you should at the very least learn the basics behind what that means! The ability to read financial statements and actually learn something from doing so, for example, can take you exponentially further than simply “leaving it to the professionals.” Once you can a sense of how to accurately analyze basic financial documents, you’ll be exponentially closer to finding success as a small business owner.
Consider Cloud ERP
Are your business finances sequestered to an ancient spreadsheet that hasn’t been updated in years? If so, you’re not doing yourself, your employees or your business any favors. Cloud ERP finance software can be extremely beneficial in helping you to gain a better sense of your business’s financial health, not to mention the wealth of other benefits associated with ERP solutions.
Pay Close Attention to Revenue Growth (Or Lack Thereof)
It’s easy to make assumptions about your business based upon a month or two of revenue. What this information doesn’t provide is a big-picture analysis, which is essential for experiencing true, verifiable growth. Rather, revenue needs to be analyzed on a longer-term basis, such as over the course of a year or more. This way, you’re not just seeing spikes or dips, but a pattern across multiple months that will give you a clearer idea of what the future may end up looking like.
Understand the Difference Between Horizontal and Vertical Analysis
There are so many ways to approach financial analysis, it can be positively head-spinning. One common way to see whether your organization is experiencing financial growth is to consider a horizontal and vertical analysis, which is far less confusing than most people think. In the simplest of terms, horizontal analysis refers to comparing financial information over a span of time, while vertical analysis involves only the analysis of a single financial statement. What you’re really looking for when making vertical and horizontal analyses is a relationship between the two, which can help you to decide direction(s) certain aspects of business should move.
Don’t Incorporate Personal Finances
This may seem as if it goes without saying, but the mistake of incorporating personal decisions into business financials is quite common. Whether it be an elaborate meal that has nothing to do with a client, extensive car service usage or anything in-between, personal purchases should never be mixed up with business-related financial decisions. If it doesn’t apply 100% to the workday, it shouldn’t be a business expense—period.
If you’ve been waiting around to analyze your business finances, you’re not alone. Still, ignorance is nowhere near the bliss that many people expect when it comes to running a business. Now’s the time to get started—don’t let the details bog you down.
Are you planning to invest but unsure where ...