Learning from the financial reports of your business: 3 important questions to ask
Your business’s financial reports should help you make important business decisions. While there are many smart decisions you’ll be able to make with efficient reports by your side, these are three of the most important questions to ask:
1. What should I sell more or less of?
A key principle to help you, not only to make your business survive but to make it flourish, is to use the market intelligence you have and to provide for your market's current and future needs and wants. By using sales reportst hat show your top selling and least selling products over a certain period, you can easily identify which products you need to:
- a) Market differently
- b) Tweak so that they become more customer-friendly
- c) Cut down on producing or sourcing, or
- d) Discontinue altogether.
Sales reports can also reveal top customers. This enables you to spend more time focusing on relation ship management with your essential customers, ensuring that these customers are well taken care of. You can then redirect the cash you generate from these customers into market aspects that need improvement.
2. Do I need additional funding?
There are a few internal courses of action you could look at first, like reducing costs or driving more sales to increase revenue for example. But this may not be enough. Many start-up and small businesses are self-funded, which is ideal. However, for many businesses there comes a time when cash flow is not sufficient to maintain operations and additional funding may be necessary. Whether it’s acquired through a business loan or through an external investor, financial reports are required to convince a bank or an investor that you can manage your finances. So you need to ensure that you keep track of your finances regularly and that your financial data are always up to date. Financial reports such as the income statement and can help you gauge whether you need additional funding to curb seasonal fluctuations, or whether you need to purchase additional stock to cater for a growth in demand.
3. How and when can I expand my business?
When your business has been profitable for some time, you don’t have to stress about cash flow, and the demand for your product exceeds your expectations, it’s a clear sign that business is going well. This means that it may be time to expand your business. As exciting as expansion is, it needs to be considered very carefully. In this consideration, insights from financial reports and other business reports will be crucial. There is also a sum of other options you could consider before expanding. Examples are: replacing old equipment, settling debts, giving something back to shareholders, or putting money aside for a darker period. However, if your mind is made up on expansion, a big decision is to decide on what type of expansion to go with. Possible expansion options are:
- Sell more of the same products.
- Open a shop in another area.
- Diversify – offer complimentary products to what you currently offer.
- Franchise your business.
- Merge with or acquire another business.
Not all expansion options are suitable for all types of businesses or industries. It’s important to do thorough research into what will work for you and your business, and what resources you have at your disposal. Use all relevant intelligence that is available! Part of this research will be determining the long-term profitability of your business, considering the expansion opportunity. What does the future look like? Without having access to up-to-date financials that you can easily analyze, you could end up making rash decisions that could have negative consequences or even cost you your business. Being able to make quick decisions, based on accurate data, allows you to kunderstand whether you need to wait for the right moment to expand your business, or if your business is ready to do it immediately. Whatever the case, realizing and understanding the importance of your business’s financial reports goes a long way to growing and maintaining a successful business. We hope you keep these insights in mind and can become the champion of your financials and get them to work for you and your business.
Author: Milentha Bisetty
Source: Sage Intelligence