PERSPECTIVES FOR THE FINANCIAL HEALTH OF YOUR BUSINESS
Your business has developed to a sufficient level, so You don’t have to worry about the doubts of a “starting” person whether it will survive or not. You are still at a stage in your development where you manage, make business deals, take a stand on operational issues yourself, or have managed to start some internal transformation and delegate step by step. It happens more than once that you conclude a deal or a series of deals that you consider quite good in terms of finding good potential clients, expanding sales capacity, a good enough margin for the business, and yet after the financial report, which your accountant has prepared, the result You see is far from expectations. Your accountant has done a great job, everything is reflected and there are no errors.
What happens then? Why doesn’t simple math in deals give the desired result in the end? What’s wrong, everything has worked so far 😊? Do you recognize this situation? Have you ever been in it while your business was developing or are you there now? Do you want to know what’s not working or what’s missing in the picture so that adequate management and business decisions can be made?
Standard and familiar to all financial statements and analyses /calculated ratios/ are useful, but they reflect the result at the end. It is difficult to understand what is happening from them, both good and bad trends. Moreover, they are often made long after the situations have already occurred. There is nothing wrong with the above, because first the legislative framework, as well as the accounting standards, require a certain format and content that the accountant adheres to. All financial and tax institutions work with this format. The same format is used to compare the result, both with other reporting periods and with competitive businesses, for example. However, they have one serious drawback - these formats do not provide sufficient information to management and the owner about what is happening in the company, so the financial results are such /whether they are good or bad/.
In addition to standard accounting reports, developed businesses, as well as those that make constant improvements, implement and use additional internal reporting systems, as well as analyses for management purposes. They contain information that identifies the specific business quite clearly, is easily relied upon by management, and can be monitored more frequently than accounting reports when needed. Of course, care must be taken not to get bogged down in unnecessary paperwork and bureaucracy or to collect information that no one uses. The goal of this entire organization is for the business to be able to track what is happening, to catch significant deviations in time, to monitor performance and the trend of set goals, and most importantly, for the information to be useful in making quick and adequate decisions. By tracking simple indicators that are collected and effectively achieved, there is more understanding and engagement from the staff.
For a large part of the staff of a given company, information that the company, for example, has a profit of XXX leva for a certain period tells them nothing /except that the company has earned XXX leva 😊/. But if they see information such as that the company has increased sales by XXX leva, against which there is an increase of YYY units of production or goods, the latter will already speak. Also, if the company has kept the number of personnel at ZZZ people, but has achieved an increase in volume with an increase in productivity /and it is not related to simply loading people to do more work under the same conditions/. For example, it has changed the way of organization /let’s say it has eliminated some of the losses of time or resources/, which has led to the possibility of taking on a larger volume without any load or has invested in more modern machines. All this, however, must be measured with simple and understandable indicators, which for management purposes must be linked to financial results. Or in other words, the business needs to create adequate reporting and a way to measure the result, which should provide an opportunity for analysis /what happened, what is the reason - both for good and bad trends/, planning and forecasting actions and what to change, as well as expected results /the goal is still to have satisfied results when the result is reported/. There is much more to be said on the topic.
Apart from the analysis of business processes /which is quite a serious science/, a self-respecting company also needs good financial analysis and a process of planning, forecasting, and reporting results in a way that is different from current accounting. This does not mean that the accounting department should be removed - they have other commitments and tasks that also need to be prepared and monitored.
If You realize the need for this change, then you certainly need financial management and an advisor with the necessary knowledge and experience at a corporate level.
Author: Galina Vankova, Ethical Finance GV LTD
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