Your business’s financial reports help you with making important business decisions. While there are many smart decisions you’ll be able to make with efficient reports by your side, we’ll just be looking at three of them:
#1 What should I sell more or less of?
A key principle to help you stay in business and flourish is to listen to the market and provide for their current and future needs and wants. Using sales reports that show your top selling and least selling items over a period, you can easily identify which products you need to:
- a) Market differently
- b) Tweak so that they are more customer-friendly
- c) Cut down on producing or sourcing, or
- d) Discontinue altogether.
Sales reports can also reveal who your top customers are. This enables you to spend more time focusing on those essential relationships and ensuring that these customers are well taken care of. You can then redirect that cash into something more in demand.
#2 Do I need additional funding?
While there are a few internal courses of action you could look to first, for example; reducing costs or driving more sales to increase revenue, it may not be enough. Many start-up and small businesses are self-funded, which is ideal. However, for many businesses there comes a time when cash flow is not sufficient to maintain operations and additional funding may be required.
Whether it’s acquired through a business loan or an investor, financial reports will be required to prove to the bank or investor that you can manage your finances. So, you need to ensure that you keep track of your finances regularly and that your data is always up to date. Financial reports such as the income statement and cash flow statement can help you gauge whether you need additional funding to curb seasonal fluctuations, or whether you need to purchase additional stock to cater for a growth in demand.
#3 How and when can I expand my business?
When your business has been profitable for some time, when you don’t stress about cash flow, and when the demand for your product far exceeds your expectations, it’s a clear sign that things are going well, and it may be time to expand your business. As exciting as expansion is, it needs to be considered very carefully, and insight from financial and other business reports will be crucial.
There is also a heap of other options you could consider before expanding, like; replacing old equipment, settling any debts, giving something back to shareholders, or putting money aside for a rainy day. However, if your mind is made up on expansion, here’s the way to go:
When you’re considering expanding your business, a big decision is making up your mind on what type of expansion to go with. For example, will you:
- Sell more of the same product/s.
- Open shop in another area.
- Diversify – offer complimentary products to what you currently offer.
- Franchise your business.
- Merge with or acquire another business.
Not all types of expansions are suitable for all types and sizes of businesses, or for every industry. It’s important to do thorough research into what will work for you and your business, and what resources you have at your disposal. Part of this research will be determining the long-term profitability of your business considering the expansion opportunity. What does the future look like? Without having access to up-to-date financials that you can easily analyze, you could end up making rash decisions that could cost you your business. Being able to decide quickly, based on accurate data, allows you to know whether you need to hold off and wait for the right moment to expand your business, or if you’re ready to do it immediately.
Whatever the case, realizing and understanding the importance of your business’s financial reports goes a long way to growing and maintaining a successful business. We hope you’ve gained some important knowledge in how you can become the champion of your financials and finally get them to work for you and your business.
