Money is the soul of every business. If you don’t know how the soul is doing, the body (the company) is dying off. For every business, it’s essential to keep track of your financials. So, don’t underestimate the value of maintaining an excellent financial data infrastructure.
Either you run a startup business or hem the affairs of any part of a larger organization and pay attention to financial data. Irrespective of your company’s growth stage, keeping a stellar financial record and data is essential. An excellent financial data system makes your business trustworthy and informs better decision-making.
WHAT IS FINANCE DATA?
Financial data reflects the financial health and performance of a business. Therefore, financial data’s insights are vital to internal business performance analysis. In addition, when you have comprehensive financial data, it becomes easier to change business strategies and tactics.
Furthermore, the financial analysis also helps external entities judge the business. For instance, your financials can determine your business’s creditworthiness, regulatory compliance, etc. If the financials from your business is bad, it becomes difficult to access loans, investments, grants, etc.
IMPORTANCE OF FINANCE DATA IN BUSINESS
Development of a Business Strategy
For a business, growth is of utmost importance. Without growth, the company tends towards dying off or losing relevance. To achieve growth, however, having a concrete business strategy is vital. But at the end of it, a business strategy’s success heavily depends on the financials.
Business strategies and models are all predictive elements of a startup. For example, when there are robust financial data, your business can make stronger, accurate, and efficient predictions about growth.
It’s vital to note that monitoring financial data or developing business strategy isn’t one-time. For instance, companies seeking investment to pivot to a new or additional direction need an updated business strategy. In this case, financial data is critical; to reflect the company’s current and past financial health. In addition, the state of the financials informs investors of the long-term growth potential.
Proper financial analysis is vital to strategic planning. A significant role of these financial details in your plan is resource allocation. The company’s financial realities limit the allocation of resources. Hence, it’s vital to keep track of the company’s financial position. Similarly, setting and managing financial goals, performance and resources are crucial. All these culminate to ensure successful planning, implementation, and performance monitoring.
IMPORTANT FINANCE DATA POINTS FOR BUSINESS STRATEGY DEVELOPMENT
There are nine vital financial data points to monitor as a business. Different combinations of these data points help benchmark and set goals in tax optimization, risk management, asset management, investment decisions, etc.
Available Net Cash
The financial fitness of a company can be measured by its available net cash. Net cash reflects a company’s operational efficiency. Net cash is measured by subtracting investments and working capital from the cash flow. With this metric, your company can plan capital expenditures better.
Revenue indexes draw a picture of the potential long-term successes. This is a critical data point in strategic planning. The elements of revenue growth every company should monitor include; quality, quantity, and timing. Also, your revenue mustn’t depend heavily on one client – a whale client.
You can calculate the revenue growth by subtracting the last period’s revenue from the current revenue. Then, divide the result by the last period’s revenue total.
The profitability ratio is a financial data point, which measures operational efficiency. It can also shed light on areas in need of corrections. It weighs the relationship between net worth and total assets, then profits and sales.
Gross profit must be of a wide margin. A healthy profit margin makes it easier for your company to absorb negative impacts. There are two other profit subcategories to monitor: operating profit margin and net profit margin.
Economic value-added is a critical financial data point depending on risk adjustment. It informs your business’ decision of whether to expend or not. It can also highlight areas of business in need of drastic corrective measures.
These are focused on the business’ sales and market share growth. If your company has made many sacrifices to grow, this financial data proves it was worth it. Hence, you should be looking at profit margins, cash flow, and ROI.
Operational efficiency measures the effective usage of business resources. If operational efficiency is poor, lower profit and stunted growth ensue. Hence, these financial data point focuses on accounts receivables turnover and inventory turnover.
Data on liquidity represents a company’s ability to generate ample cash to sort its cash expenses. As a business owner, paying attention to liquidity is critical. If the liquidity ratio is below 1, it indicates the absence of sufficient liquid resources. AA figure above2, however, suggests a good liquidity level.
Capital Efficiency and Solvency
When seeking investors or lenders, they are particular about your company’s capital efficiency. Capital efficiency is a measure of the returns your business generates for investors.
At every phase in your business – good or bad – ensure that financial data is diligently tracked. Not keeping up with financial insights about your business can be disastrous.