Keeping a close eye on your company’s financials is essential in planning a business strategy.

Every company should pay attention to its current financial state. It can be of immeasurable value for future business ventures and financial projections. Not to mention serve as an orientation point when deciding on the direction in which the company will move.

Proper financial analysis is complex and requires a level of understanding of the relevant information. But if you approach the task with care and attention by following the steps below, you’ll manage to get a clear picture of your company’s financial position.

Step #1. Analyse the Value Chain

If your business is product related, the value chain is a process that identifies activities related to the creation, manufacturing, and distribution of your product. This process also involves a thorough examination of the internal activities to determine which are the most valuable and which need improvements.

Reviewing individual steps and their costs will give you valuable insight into the basic expenses of making your product ready and available for sale.

Step #2. Review Financial Statements

When you review the financial statements, it’s important to understand the vital components and terms. Here are some brief explanations of what you might see in your financial information:

• The balance sheet should be your starting point. This statement presents assets and liabilities, as well as equity, on an annual basis.
• Under assets and liabilities, you’ll have both current, expected to last for less than 12 months, and non-current, which will last for more than a year.
• Dividing total assets by total liabilities will give you the current ratio, which is a reliable way to assess your company’s ability to fulfil all ongoing obligations.
• Subtracting liabilities from assets produces the book value, which expresses the shareholder capital and company profits.

Step #3. Measure Risk and Potential Profit

Once you understand your financial statement, you should examine how profitable your business is at the moment and compare that to the company’s assets and equity.

Doing so will help you understand how well your company can deal with the market’s risks and challenges.

The crucial aspect of this step is comparison – you’ll need to look at current data concerning past numbers, as well as to the competitors and marketplace averages.

Step #4. Create a Forecast

To make the most out of the analysis, you should use the above information to create a financial forecast. The forecast will be based on your assumptions about how your business will grow and the market situation in the foreseeable future.

When you build a forecasted statement, it will be a valuable tool for detecting areas of your business that could be improved. It will also prepare you for challenges that might lie ahead.

Analyse, Plan, and React

Dealing with the challenging task of financial analysis shouldn’t be an isolated effort. The point of developing a thorough understanding of the financials is to formulate a strategy and execute it efficiently.

Cut down the costs, prepare a precise plan of action, and be ready to push your business in the right direction.

Logical BI Limited can provide one-off consultation with our two hour The Business Booster Consultancy Call – Logical BI , four month review and reset project Logical BI or continuous support https://logicalbi.com/cfo-retainer-services .  Feel free to book a free, no-obligation call today https://calendly.com/pauline-healey/discovery-call-outsourced-fd-support

Do you want to know how your business and cash will perform in the future? Apply the following methods to improve your cash forecasting.

Forecasting your company’s cash flow helps minimise potential risks and indicate if the company is in a position to go after opportunities and grow.

Correct cash flow management is a given. But monitoring all the money coming and going doesn’t always provide all the vital information you need to make accurate predictions.

The following tips and areas of focus should contribute to a better strategy for your forecasting.

Tip #1 – Estimate Future Sales

The accuracy of cash flow forecasting relies on multiple variables, of which arguably none is as important as the sales forecasts.

To improve accuracy, the estimate should depend on the following series of factors:

• Past results
• Market share
• Resources
• Competition
• Pricing

Tip #2 – Estimate Profit and Loss

After your sales projections, you need to factor in the projected costs, too. This gives you more information about your profitability.

Of course, you have to know both the expected revenue and the cost of sales to estimate projected gross and net profits.  Costs include direct costs which are variable to the volume of sales and also overheads which may be fixed or semi-variable but generally do not alter with sales volume.

Tip #3 – Perform Monthly Sales Estimates

Some businesses don’t turn out enough data in a single week to make accurate projections. This happens because customers sometimes delay payments. Or, the money simply doesn’t come through in time to match the daily revenue on the books.

For that reason, it’s important to stick to monthly estimates with consideration to any known delays.

Tip #4 – Include Payments Due

Sometimes a business might have to pay for expenses, services, or purchases. And those types of payments usually find their way on P&L statements.

In some cases, however, a registered payment does not mean that the money is to leave right now. That money could leave the account only in the next month, for example.

Hence, you have to include projected payments in the cash flow forecast to further improve its accuracy.  Remember the credit terms given to your customers and the credit terms for your payments to suppliers.

The following are examples of payments due worth considering:

• VAT taxes
• Interest rates on loans
• Utilities
• Corporation tax
• PAYE taxes

Tip #5 – Compare with Current Cash Flow

One of the causes of inaccurate forecasting is unrealistic expectations.

It’s always important to check the forecast versus the current cash flow statement. Large discrepancies that no one can back up with facts may signal missing variables in the equation.

Each month start with the correct opening bank balance per your bank statements.

Tip #6 – Make Consistent Predictions

Doing a cash flow forecast once may not give you a degree of accuracy that all business owners hope to achieve.

One of the best ways to improve the accuracy of cash flow forecasts is to make it a habit. Updating your forecast as often as possible with new information can drastically improve its accuracy.

Furthermore, forecasting over long periods of time helps uncover certain trends. Again, it’s all data that can help improve future predictions.

Tip #7 – Account for Variable Costs

VAT taxes and interest rates are unlikely to change from month to month. But other costs may change depending on the weather, season, and other exterior factors.

So when calculating costs, it’s critical to allow some wiggle room for the variable costs. Those are costs that may vary from month to month – utility costs, for one, and perhaps the phone bill.

Accuracy Comes From Good Data

It’s nearly impossible to create a realistic forecast without using all the right information. This is especially true when many things can happen in the future that will be out of your control.

But, using as much data as possible can only lead to more accurate forecasts. So keep collecting the right data and use it well.

Tip #8- Outsource Finance Direct Support

Why not take the pain away and hire expertise to help you understand your current and future cash position.

Logical BI Limited can provide one-off consultation with our two hour The Business Booster Consultancy Call – Logical BI , four month review and reset project Logical BI or continuous support https://logicalbi.com/cfo-retainer-services .  Feel free to book a free, no-obligation call today https://calendly.com/pauline-healey/discovery-call-outsourced-fd-support

Making the best choice for your business can often prove challenging. Luckily, there are ways to make your decision making skills better.

People who can make the right decision at a moment’s notice are always well-respected among their peers.

It might seem like this ability comes naturally. But in reality, it’s a skill you can learn and develop.

Here are four tips about decision-making that will help you do just that.

Tip #1. Learn From Experience

Experience from previous situations comparable to the present can inform your decisions and serve as a useful guide and point of reference. That’s why in many cases, keeping a record of past crucial decisions can prove invaluable.

But you don’t have to rely only on your own experiences.

When faced with a decision, especially if it’s a crucial one, don’t shy away from consulting other people. Those working in the same field as you could have useful insights and knowledge that you can leverage in your decision-making process.

 Tip #2. Break Down the Questions

Complicated decisions can often be broken down into smaller components that are less challenging to understand and resolve. If you can see the large picture as a set of simple, interconnected factors, you’ll have an easier time reaching a decision.

Starting from the current state of matters, define the outcome of your choice as the endpoint.  

Look at creating a journey, from your current position to your desired outcome.  Ask yourself what’s the most optimal path leading from one to the other and weigh the costs and benefits of each step.

The gained insight from breaking down the questions can make your decision-making much more straightforward. You could even find a more effective way to resolve the issue at hand.

Tip #3. Compare Costs and Benefits

You can apply cost-benefit analysis to most choices. It comes down to weighing the pros and cons, considering what resources to use, and understanding the outcome of your decision.

Think about the available options and imagine what it would take to act on each of them relative to what you’d achieve through those actions. It would be very helpful to remain realistic when considering both positive and negative aspects.

Once you’ve measured the costs and benefits of your decision, the solution might become obvious even if it’s not the one you initially expected. 

Remember not to only measure the gains, but also some potential loss of revenue whilst you transition.

Tip #4. Prioritise

If you’re facing one complex decision or a series of smaller ones that require your immediate attention, the situation can become overwhelming. However, you won’t always have the luxury of taking a step back and carefully examining each question.

This is when prioritisation can be of vital importance.

The essential decision you should make is which matter requires your attention the most. When you realise which issues are pressing and which can be put on hold, the situation will become more transparent and you’ll be able to direct your actions more efficiently.

Prioritising is equally useful when it comes to a single big decision. In this case, however, you should concentrate on which outcome is the most important rather than which question needs answering first.

Weighing short-term and long-term profit is a good example of prioritising. Faced with a choice between the two, a company will decide on the course of action based on which type of profit it prioritises.

Improve Your Decision Making

Making well-informed, reasonable decisions is at the core of every successful venture. Luckily, you can improve your decision-making process using the described methods and start making choices that lead to the most beneficial outcomes.

Logical BI provide business consultancy and mentoring which can support your decision making by reviewing your choices, current position and providing expertise on how to achieve your desired outcomes.  Providing consultancy options from a one-off two hour consultancy call with direct booking link so you can schedule a convenient time for your call The Business Booster Consultancy Call – Logical BI, to short term projects Business Planning Packages – Logical BI or retainers CFO Retainer Services – Logical BI

Check out our other blogs which could support you or your business Articles – Logical BI