Analyzing the financial situation of small and medium-sized companies should be a constant strategic management action in the business routine. In addition to monitoring results, the process also involves good planning.
After all, each entrepreneur who plans to run a successful organization needs to know that any action made in the company will have a consequence for the structure and the economic and financial performance of business.
In this article, you will learn 4 tips for assessing your company’s financial situation and making more strategic decisions in the development of your business. Let’s get started!
Importance of assessing the company’s financial situation
Many companies have difficulty consolidating their businesses in the medium and long term. This can be caused by internal problems or problems related to competitors and any other factor arising from the country’s economic situation.
Furthermore, some reasons why there is a drop in performance or profit generation in a business are:
- lack of cash flow control;
- maladministration;
- lack of experience and planning;
- lack of working capital;
- between others.
In this sense, financial analysis is the main way to study a company’s profit-generating capacity and measure its development. Through it, it is possible to find ways to improve the use of resources and, consequently, the business’s finances.
Therefore, a good manager must be able to identify his or her financial situation. This way, he or she can gain more autonomy in decision-making. By knowing whether the company’s finances are positive or negative, it is possible to develop short, medium and long-term strategies for the company’s growth.
To facilitate this process, it is essential to keep accounting data up to date. This information will help identify potential problems in financial management and correct these bottlenecks to ensure the economic balance of the business.
4 Tips for assessing your company’s financial situation
Now that you know how important it is to assess the financial situation of your company, you should be aware that there are several ways to put this action into practice. To make the process easier and more intuitive, it’s worth knowing 4 tips for making a good analysis of the economic and financial health of the company.
Check it out below!
Analyze the balance sheet
The balance sheet is a statement that shows the position of a company’s assets in a quantitative and qualitative way. Thus, it provides an overview of the economic and financial situation of the business.
To make the analysis and interpretation of the document more organized and effective, the accounts relating to assets are grouped and presented in ascending order of liquidity. Information relating to liabilities is gathered and shown in ascending order of enforceability.
Because they have quantitative and qualitative elements, the components of the balance sheet allow for a detailed analysis of the assets, rights and credits that the company owns.
Likewise, this data allows us to understand the obligations and debts obtained with third parties. This analysis provides a short, medium and long-term overview of the business to adapt its strategic management according to the financial and economic needs presented.
Also consider the DRE analysis
The income statement (DRE) is a fundamental informative report for intelligent business financial planning . The purpose of this document is to indicate, monthly or annually, whether the company is making a profit or loss.
To this end, the DRE presents the revenues, costs and results of a period, analyzed according to the accounting principle of the accrual basis of accounts. Thus, it is possible to demonstrate all the logic and calculations that led to the net result obtained.
Therefore, preparing the income statement and analyzing it together with the balance sheet is very interesting for the good management of the company. These reports allow a critical and in-depth evaluation of the figures presented, considering the effectiveness of the measures adopted by the company in the period analyzed.
They also allow you to develop new strategies for the future. To do this, you can study scenarios that will allow you to expand your operations in the market, increase your profit margin and improve your financial performance.
Discover the main economic and financial indicators
Using a methodology and adopting economic and financial indexes is essential for business management to be able to organize the numbers. This makes it possible to transform them into relevant information for the business.
In this sense, activity indicators aim to measure the speed at which accounts are converted into cash. This helps to understand whether sales revenue is being quickly used to finance activities, for example.
Capital structure indicators allow us to assess the company’s debt situation. They also help to analyze the company’s cash generation capacity, aiming to settle financial obligations without compromising its performance over the period.
Profitability indicators are also quite common and analyze the profits obtained in relation to the capital invested, sales made and assets existing in your accounts.
Before defining which indexes will be used to check the financial and economic health of your company, evaluate which ones are being used by the market. This way, your results will reflect the reality of the company in relation to others in the same sector.
Use financial management software
As you have seen, there are several analyses that need to be done to understand the state of the company’s finances and create projections. Therefore, controlling your financial system becomes much simpler with the help of management software.
The system allows you to organize your bank accounts and credit cards in one place. This makes it much easier to generate reports and perform financial analyses. In addition, by having management software, you will have qualified support at any stage of your business.
