The Guide To Gaining Better Visibility Into Your Company’s Financial Performance

Improved visibility of your company’s financial performance is essential for its growth and longevity. When your accounting systems and reporting tools don’t give you valuable insight into your profit and loss numbers, you can’t make informed decisions that lead to a continual improvement process.

Regular financial statement analysis leads to better decision-making, but what happens when the numbers don’t match the actual financial situation within the company? You will end up with an inaccurate balance sheet that can lead to all sorts of long-term complications.

When investors look at your company, your profit margins are what will interest them the most. They will want to see reports on profit and loss, income statements, account reconciliations, and so on. Therefore, your financial system, particularly your accounting systems and reporting tools, need to be reliable and accurate.

To better understand your financial performance, you must first know all the factors that influence it. Your operating profit and total shareholders equity are only a few indicators that may provide insight into your financial health.

To get all of the information you need, we must take a deeper dive into increasing visibility for the continual improvement of your financial health. We start with the financial reports that help you in gaining visibility into the performance of your finance operation. We also have some strategies for getting started on increasing visibility of your financial system.

The Balance Sheet

Its assets and liabilities define the operational efficiency of almost any company. When investors look into your financial position, they also consider shareholder equity. Your balance sheet serves as a source of information for investors, hence the need for accuracy and error-free reporting. The standard format of a balance sheet includes assets, liabilities, and shareholder equity.

Current Assets and Liabilities

A company’s assets and liabilities are broken into two groups – current and non-current items. Current items refer to those with an expected life of fewer than 12 months. Current liabilities are any obligations the company has to pay within the following year. They include existing (or accrued) obligations to suppliers, employees, the tax office, and providers of short-term finance. Companies need to manage their operating cash flows in order to meet these short-term liabilities.

The Current Ratio

To conduct a thorough financial analysis, you must look at the current ratio. This ratio is calculated by dividing current assets by total current liabilities. Preferred ratios vary depending on the industry, but if you are getting close to insolvency or unnecessary building up cash, it may be a bad sign for investors. When determining your ratio, investors will look at historical financial data, such as the previous company’s financial statements.

Non-Current Assets and Liabilities

Assets or liabilities that are expected to go beyond the next year, fall under the non-current group. The most common assets and liabilities in this group are property and equipment, along with any other needs to run your business successfully. Leasing contracts and borrowings are the most common items in this group.

Book Value

If you subtract your total liabilities from your total assets, you will end up with your book value, or accounting value, of the shareholders’ stake in the company. Financial analysts use this metric to determine how much capital was contributed by shareholders over time and how much profits the company made and retained.

Market-to-Book Multiple

 When they look into a company, investors want to determine if the stock is overpriced or undervalued. It is one of the most important financial performance indicators and a very commonly used tool by value investors. By comparing the company’s market value to the actual book value, investors can estimate the financial health of any given company.

If you want to analyze the financial performance in your company, you can’t leave out market-to-book multiple. As with the current ratio, preferred levels may vary, but by comparing it to other publicly listed companies, you should be able to determine how well your company is performing based on that metric.

Why Visibility is Valuable

Now that we have a clear understanding of basic financial metrics, it is time to discuss possible problems with in-house accounting and how you can overcome them.

Investment professionals have increased the demand for transparency and accuracy in financial reporting. If they don’t have a clear insight into your company’s financial health, they will probably move on and consider other options. With in-house accounting, keeping track of your business operations isn’t always easy.

The location of your office may limit your talent choices, while unreliable staffing can cause all sorts of problems. Most (if not all) investor information comes from your books. Keeping them in order often requires a skilled finance staff to spend hours on administrative tasks. All of this leads to decreased productivity while also increasing the chance for erroneous reporting. Back-office accounting can be helpful in some cases by reducing office space costs, but it can’t compete with outsourcing.

Analyze Financial Statements and Ratios

Creating balance sheets is very important, but analyzing the data can provide valuable insight into your company’s financial position. Keep your expenditure statements in check and use them to calculate related ratios like gross profit, net profit, earnings before interest, taxes, depreciation, and others. Even if your company is making profits, calculating depreciation, and meeting other overhead expenses is vital for the long term. In some cases, a company may have gross profit but end up with a net loss after tax payments and interest obligations have been calculated.

Analyze Revenue and Accounts Receivable Cycle

Companies have to own liquid cash or assets that can be liquidated at all times. You should check if your debtors are making payments on time. This keeps your working capital situation stable to a large degree. A company needs to keep its revenue above its expenses in order to keep a stable financial position. Revenue must come from core operations, and liquidating fixed items cannot be considered a viable revenue stream.

Keep an Eye on Inventory and Investment

 Wastage of resources is common and, therefore, must be monitored regularly. Capital and the output generated must be validated against each other. Wastage proportion, the number of finished goods, and the total products sold are clear indicators of your company’s business operations. If the numbers show large disparities among them, companies must be careful with asset management.

Keep your Expenses in Check

A constant increase in expenses can indicate a flaw in your financial management. Talk to your financial staff and figure out what is causing that additional spending. They should have enough information for you to figure out if you are dealing with one-time expenses or an irreversible trend.

Analyze Liabilities and Capital

Another way to keep your financial position in check is to have a good overview of your liabilities and capital. The more the company borrows, the more it will have to pay in interest. A similar situation is in place with shareholder equity. The more equity your shareholders have, the less control you have over the company. Paying additional dividends is also to be expected in this case.

Accountants can handle the micro aspects of finance and accounting, but relevant business units and executive staff members should be aware of your financial situation. By analyzing this data periodically, they will have more information regarding the financial position of your company and make better decisions overall. Having insight into such details enables your executive staff members to act accordingly if the financial situation requires it.

Understand the Responsibilities of Your Financial Department

As a business leader, it is crucial to understand your financial department’s responsibilities. This way, you can oversee the quality of their work and indicate any flaws in the reporting process. Business leaders that understand finances can act accordingly when the accounting staff is moving in the wrong direction.

Again, all of this can be avoided with outsourced accounting since service providers are already familiar with these complexities.

Outsourced Partners Keep a Close Eye on Your Company’s Financial Performance

To cut their operating expenses, many companies have started using finance-as-a-service, but reduced costs aren’t the only benefits that come with these services. Outsourcing partners hire the very best talent in finance and accounting thanks to remote work and the possibility of global employment. By letting a third-party service provider handle your accounting, you will create more time for decision making.

Professionally managed financial records enable accurate and detailed financial insight. This is made possible with advanced accounting software solutions like SIMPL© and executive-level staff members that understand the importance of precise bookkeeping.

The Benefits of Outsourcing

Cost Reduction

Apart from increasing productivity and business performance, outsourcing contributes to lower operational costs in general. Service providers charge companies only for the services provided, so all unnecessary expenses are eliminated.

Since there is no need to have in-house accounting teams, there is no cost allocation for more office space, regular training, constant management reports, technological improvements, and other labor costs. Other obligations like unemployment taxes, hiring and training new staff members, health care benefits, and paid-time-off are non-existent with outsourced accounting. Cost reduction is one of the main selling points for finance-as-a-service, but it isn’t the only benefit that comes with it.

Accurate and On-demand Reporting

Reputable outsourcing solutions like Consero employ only the best talent in the industry. Their access to a global pool of financial professionals has enabled high-quality services at lower costs for companies. Having financial experts managing your administrative tasks can improve reporting accuracy so you can understand financial impacts and make optimal business decisions

Service providers do their best to understand your vision and goals. Their executive-level staff members are on the same page, so they will always work in your best interest. Their ability to deliver reports on-demand will substantially improve your decision making. Error-free reports give you clear insight into the company’s financial health while completely removing the burden of administrative tasks so you can focus on strategic initiatives that align with the goals of the business.

Advanced Accounting Software Solutions

As we already mentioned, cloud-based platforms like SIMPL© encourage self-service and eliminate the “go ask” environment. Many executives come across different issues because there are various sources of information or simply complicated formats of valuable information. This completely limits transparency while also making executives doubt the numbers and accuracy of the information provided.

By having your balance available through an easy-to-read financial dashboard, your financial team will have instant access to information. This 24/7 availability simplifies the process of acquiring reliable financial information while at the same time, makes your financial data accessible on-demand. Such software solutions can be expensive when purchased exclusively for one company, so outsourcing partners try to bring it closer to their customers at affordable prices. In terms of functionality, you can expect access to:

  • Current cash position
  • Accounts receivable & accounts payable balances and details
  • Invoices
  • Interactive monthly financials
  • Custom financial reports
  • Graphical trends for revenue and spending
  • Status of finance team deliverables

Reliable Financial Monitoring and Consulting

With in-house accounting, it can be almost impossible to keep track of your financial situation at all times. Your staff members need to be on top of things at all times, but constant regulatory changes can limit their potential to do so. The need for additional training further burdens your company’s capital, but this is not the case with outsourced finance.

Depending on the contract you have signed with your outsourcing partner, you may expect constant financial monitoring and reporting. This means that financial experts will have an overview of your company’s financial health at all times and will provide updates when needed. Overspending and bad financial management can be prevented with the help of skilled professionals. On top of all that, outsourcing partners share valuable financial information with their clients in a timely manner. If regulatory changes require some adjustments in the financial department, your company will be noticed and instructed on how to act upon those changes.

Improved Data Security

Handling payroll services on your own can be risky if you are unsure of the security levels provided by your accounting software and hardware solutions. Server security is always at risk. Outsourcing companies have already established internal controls and secure housing for their client’s data so you can expect your reports to be safely guarded. Cost-saving is a significant factor here since investing in such security measures within your company can become expensive over time. Knowing that your service provider is securely handling your financial data gives you peace of mind and more time to focus on more important issues.

Outsourcing Accounting Minimizes Risks

Penalties, interest charges, and even litigation are all pitfalls of accounting regardless of your industry. Risks can also come from within your own company since it isn’t rare that employees manipulate books to their advantage. When you outsource, you can count strong work ethics from their employees. The responsibility falls on the shoulders of your service provider, which minimizes the risk of fraud and number manipulation. Since you will be working with professionals that understand the complexities of regulations, government compliance, taxes, and human resources, your risk levels will be very low or non-existent.

Outsourcing Finance Increases Valuation

As we already discussed, investors are constantly on the lookout for profitable business models. Companies that outsource their accounting spend less on average and, in turn, have a higher evaluation when being sold. The reduced operational costs are a clear indicator of profitability, which, in turn, increases the valuation of your company.

Outsourcing Helps You See The Bigger Picture

By working with your company for longer periods of time, the outsourcing service provider will have better insight into your financial situation and notice possible pitfalls that you could avoid. Expert levels of financial processing ensure a precise overview of your financial health. Bad decision-making and inaccurate financial reporting can become things of the past with finance-as-a-service.

In-house Improvements That Lead to Improved Visibility

While outsourcing solves most, if not all, of the finance-related problems companies are facing today, there is a good deal of improvements business owners can make to gain access to better reporting.

Conclusion

A healthy business strategy requires a healthy financial position of your company. There are many ways to determine how good your company is performing when it comes to financing, from internal improvements to outsourced solutions that handle accounting for you.

Companies that are poised for growth will eventually see more benefits from outsourced solutions since the scaling process is simplified. Service providers allocate more staff when needed or deduct staff members if their client requests that. Flexibility plays a significant role in scaling processes, so it shouldn’t be overlooked.

Reputable outsourcing partners like Consero can simplify your accounting process and give you a clear image of your financial position. With the help of experts, you can evaluate your position and better understand the possibilities your company has.

Well-organized reporting and financial management leave more time for decision-making. If you want to know how outsourced accounting can help you better understand your company’s financial situation, feel free to request a free demo and gain more information on the subject.