How to gain more financial insight into your business

Every entrepreneur wants to run a financially healthy company. To keep your company healthy, you need financial insight. Only if you see the bigger picture can you make the right decisions and stay in control of your company. You might find ways to save money, for instance, or identify your biggest customers. Here are six things you can do to boost insight into your company’s finances.

1. Keeping good records

You are required to keep and store business records. It is a legal obligation. Besides, good business records also let you check up on your company’s financials at any time. Your figures can tell you whether your income is rising or whether your expenses are. And which customers have and have not paid. Update your records regularly and check the figures. You can only make adjustments if you have the information you need.

2. Delve into costs

Check your records and take a close look at your costs. You can distinguish between direct and indirect costs. Direct costs have to do with your product. Take production costs, for example. Indirect costs are not directly related to your product, but necessary nonetheless. Take advertising and insurance costs, for instance. Indirect costs are a great place to start saving money. Who needs double insurance or unnecessary subscriptions?

3. Check outstanding invoices

Make sure your customers pay their bills on time. This is also known as receivables management. Good receivables management will help you prevent stress and financial problems. Always put your payment terms in your quote and terms and conditions and on your invoice. If your customer fails to pay, reach out: call them as a reminder and engage a collection agency if that does not work. You can help your customers pay faster by sending them digital payment requests like iDEAL or Tikkie.

Video on boosting financial insight

To keep your company financially healthy, you need financial insight. Watch the video to discover 6 tips for boosting your financial insight.

4. Prepare a liquidity budget

Your liquidity budget tells you how much money you have in your bank account and when money will come in or go out. This lets you know whether you will have enough money to pay your bills or whether you will need more cash on hand. If you know that it is time to pay your insurance premiums or to give your staff holiday pay, make sure to set aside money in advance.

5. Know your financial metrics

Financial metrics are figures that show the financial health of your company. You can compare your own company's key metrics with those of your industry. Investors and financiers use your financial metrics to decide whether to put money into your business. The best-known financial metrics are:

• Liquidity: indicates the extent to which your company can pay its bills in the short term.
• Solvency: the ratio of your equity to the money you need to run your business.
• Profitability: the amount of profit your business makes.

6. Use data to make decisions

Examining your company's figures will give you information you can use to make educated decisions. Your figures show you whether you are turning a profit. You can then take that knowledge and explore ways to improve your results. You could cease loss-making activities, for instance, or focus on a new market. Your records can also tell you who your best-paying customers are. Often, 20% of your customers are responsible for 80% of your turnover. When you know who they are, you could set up a special sales campaign for them.