Handling business finances can be overwhelming for anyone, but accurate, actionable reporting is even harder. Financial visibility is necessary to the growth of your business, but if you’re not sure how to get from point A to point B, you can’t gain these insights.
Financial visibility comes from regular financial analysis and clean, high-quality data that accurately reflects your business’s standing. This includes reviewing your regular financial statements.
Here’s how you can achieve better financial visibility for your business and fuel your growth.
What Is Financial Visibility?
Financial visibility is important for any business, but more so with businesses like a S corp or sole proprietorship in California with specific requirements for taxes and reporting. This means understanding where your business stands in terms of income and cash flow, which are an accurate measure of your financial health.
In some cases, businesses operate without much knowledge of their cash flow and liquidity. It could mean running out of cash in months, or even weeks. Gaining visibility into your financial situation gives you a clear overview of your current cash position to prepare for any market shifts. Utilizing a cash flow forecast template can be immensely helpful in accurately projecting your future cash inflows and outflows, identifying potential cash gaps, and making informed decisions to optimize your financial resources.
Where Is Your Current Financial Visibility?
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Do you know where you stand right now? Here are some questions to consider:
Do you review your income statements, balance sheets, and cash flow statements regularly?
Do you understand what this data means for your business and how to interpret it for actionable insights?
Are your reports working off of the most recent and relevant data? Is it complete?
Do you have the level of detail you need to make informed decisions?
Make it a point to review financial documents like:
Your balance sheet
Your assets and liabilities, both current and non-current
The current ratio of your assets and liabilities
Your book value
All of your reporting must provide as much information as possible to understand the full scope of your financial position. You not only need all the data, but you have to understand what it indicates and how it impacts your business, now and in the future.
Steps to Improve Your Financial Visibility in Your Business
Financial visibility is imperative for all businesses, but too many business owners are unsure how to achieve it. Here are some steps to improve your financial visibility:
Harness the Power of Data
Data is a key component of financial analysis and visibility. The data is what you will rely on to make business decisions and prepare for changes and opportunities. Make sure you have processes and systems instituted to capture your expenses, monitor your cash flow, and track all your financial metrics across your business.
You should also ensure that your data is of the highest quality possible. Some platforms simply lack the features to provide high-quality data that gives you important details, such as the actual transactions and what they were for. If you’re working with incomplete, vague, or poor-quality data, you don’t have what you need to gain a clear picture.
Minimize the Delay Between Your Transactions and Your Analysis
Businesses often have systems in place that allow gaps and blind spots to occur. One example is enabling employees to make business purchases that can be reimbursed. You can end up with a long list of expenses that you were not aware of, which is overwhelming and inefficient.
Furthermore, data analysis requires the more accurate and timely data possible. If you’re going back weeks or months for expenses, you’re working with older data that’s no longer as relevant or useful. Eliminate gaps and blind spots by minimizing the time between transactions and your analysis to capture real-time data and understand your business spending as it occurs. Otherwise, you’ll be in for unpleasant surprises that possibly lead to overpaying your taxes.
Eliminate Manual Processes and Adopt Automation
Manual processes are not ideal for many reasons. They’re time consuming, take up the time and energy of your staff, increase the risk of errors or blind spots, cost you money, and put up barriers to your visibility.
For example, accounts payable is a department that’s prone to wasted resources with manual processes. Invoices must be processed and coded manually, then they go through an approval process before they reach the client. Then, you have to initiate payment, which takes longer, and track the transactions as they’re completed. You not only have a long period between invoicing and payment, but you’re wasting a lot of money on resources that could be better spent.
Automation is an excellent tool to remove these manual processes, reducing your costs, streamlining the process, and limiting errors. There are many advantages for financial visibility as well, since automation processes information quickly and helps you capture the most current data.
Remove Information Silos
Financial visibility can involve everyone, so you have to have data accessibility across your business. Your team members must be able to access the data they need to make informed decisions.
In some cases, there can be massive barriers to data access that hinder your team. Modern solutions may compound the issue, especially with data portability across large teams. If your solution isn’t helping your goals right now, consider upgrading.
Establish a Comprehensive View
Your key performance indicators (KPIs) and metrics, such as your debt-to-income ratio, are important factors in your financial analysis. But you can’t look at these numbers in a vacuum without understanding the context – especially with finance, which can fluctuate minute by minute. Everything must be viewed and interpreted in context.
Data management tools should have features for different departments, customer segmentations, channels, products, and more, giving you comprehensive data and actionable insights that allow you to evaluate your profits and expenses. It’s better to have too much than too little, because you can zero in on the information that really matters to you.
Gain Financial Visibility to Grow Your Business
Achieving financial visibility can be challenging, but it’s worth the effort. If you control the process and develop a robust foundation that prioritizes relevant, high-quality data, you can analyze your data accurately to gain a real understanding of your financial performance.