Tag: Financial Management

Your business financial management will only be successful if you know your key performance indicator facts and act based on what they are telling you. Over the last few weeks, we have discussed the importance of having a business/financial plan for your company and how to use this as a tool for ongoing planning using rolling forecasts and fine-tuning. The key performance indicators are aspects that should be an integral part of both your business’ plan and ongoing planning processes.

The key performance indicators discussed below should be viewed as a reference or guide. Essentially, they are like a checklist that will ensure that both your plan and ongoing evaluation truly do consider and respond to the essential components that make up a business and its success. Beck and Company Certified Public Accountants and Business Advisors are experienced in helping customers with their accounting and business practice needs. Please contact us so we can assist you in these processes.

Key Performance Indicators (KPIs) to Consider and Evaluate:

A key performance indicator or KPI is a type of performance measurement that organizations use to evaluate overall finances or a particular business activity’s success. When you evaluate KPIs, it is essential that you compare them to both your general business plan AND to your prior year’s results to get the best overall picture of where you are and what direction you are likely heading in. Here are ten important KPIs to evaluate within your organization.

1. New Business Bookings Monthly Recurring Revenue (MRRs)- income from new customers that a company has reasonable assurance will occur at regular intervals in the future
2. Net Business Bookings (after attrition)- a combination of income resulting from existing and new customers
3. Recurring Revenue of Invoiced Customers– income from customers that a company has reasonable assurance will occur at regular intervals in the future
4. Gross Profit Margin– profitability ratio that measures how much of every dollar of revenue is left over after paying for the cost of goods sold
5. Operating Expenses– expenditures a business incurs to engage in any activities not directly related to production of goods and services
6. EBIDTA– Earnings Before Interest, Taxes, Depreciation and Amortization
7. Headcount– the total number of people employed in the organization
8. Capacity Utilization Rate or Operating Rate– a measure of the rate at which potential output levels are being met or used that shows efficiency versus slack in the business economy
9. Cash Balances and Debt Ratios
10. Accounts Receivable Days Sales Outstanding (DSO)- a calculation that estimates the average collection period to illustrate how well a company’s accounts receivable (AR) are being managed. An equation for this would be= AR/Revenue X # of days

In addition to these top ten KPIs, there are many others that are also important. When it comes to customers, consider these KPIs: the cost of customer acquisition, the average revenue/billings per customer, the attrition value and percentage of recurring revenue from customers, and customer survey results. With regards to the business and employees, these KPIs should be addressed as well: the revenue and cost per employee, the number of months it takes to break even on sales and marketing costs, the current ratio of assets versus liabilities, average selling prices, the return on investment for both sales and service personnel, and the break-even point in revenue.

If you are a part of a non-profit organization instead of a for-profit business, you may need more specific guidance with regards to your organization’s financial management. In addition to the topics we have discussed regarding these best practices for businesses that are still applicable to non-profits, you can find more specific information for non-profits effective financial practices and reports by visiting here.

Our goal is that the financial management best practice information and tips over the past three weeks have benefitted and assisted your company. For more assistance related to your specific business, Beck and Company CPAs offer free consultations to assist you with any accounting needs you may have. Please contact us for more information, and we look forward to the opportunity to assist you.

The fundamental aspects of business finances need to undergo continual planning and fine-tuning as a means of helping to make important business decisions and improvements. Last week, we took a look at business and financial plans. Once these plans have been created, they must be modified consistently. The easiest way to make the distinction is to think of the business “plan” as fixed and to envision the fine-tuning as an ongoing process of “planning” that should always relate back to the plan. In essence, the plan remains the same while planning continues on revolving around that plan. Beck and Company Certified Public Accountants and Business Advisors have vast experience helping clients with their financial business planning needs and would be pleased to offer a complimentary accounting consultation. Let’s take a closer look at how to go about planning and fine-tuning business finances.

Rolling Forecasts: Planning for what is ahead

The ongoing planning that results from your business and financial plan is essential to sound financial management. You must take constantly changing circumstances and situations into account. Your planning process evolves along with these changes. Rolling forecasts act as this sound financial roadmap. Essentially, these rolling forecasts create an ongoing cycle of planning, evaluating, and updating organization-wide operations such as finances. The goal is to have this process help you understand problems, challenges, and trends sooner. The predictions made in rolling forecasts allow you to make changes before predicted outcomes are actually observed that ultimately save your company money and time. In its simplest form, it is a more “live” version of a budget that is also simplified so it can be generated and applied much quicker than a traditional budget could.

A rolling forecast provides many benefits to an organization in terms of reaction time, alignment of operations, and timelines. Management can better focus on making decisions that truly matter and have far-reaching implications that propel a business toward its strategic goals and overall plan. If a rolling forecast is done correctly, it will provide a competitive advantage in a rapidly changing business climate.

Here are five core components that make up a rolling forecast:

1. Extends beyond the calendar/fiscal year or baseline set by the budget to be aligned to the actual business cycle regardless of its length
2. Updates on a regular and pre-determined basis to keep a consistent rhythm that can be planned for and accommodated. Keep in mind that the number of forecast periods is dictated by real business drivers such as business cycle, competitive forces, price sensitivity, vendor reliance, and technology adaptation.
3. Emphasizes key business drivers which are business decisions or influences that impact numerous areas and ideally link revenue and expense activities
4. Rapid forecast creation by only focusing on key decisions not translating all business decisions into financial terms. Ideally, a rolling forecast solution will be able to generate an organization-wide forecast focused on a specific outcome in less than one business day.
5. Blends actual performance along with the updated forecast by using the most recent actual data. The majority of effort should be spent on updating periods that were previously forecast and not on the new periods being added to the forecast because those are more variable and less controllable/predictable.

Fine-Tuning: What is working and what isn’t working?

Consider the following aspects that need to be continually fine-tuned no matter the type of business. In the process, assess the risks and then work to mitigate them.

     -Required and Generated Cash

A few questions to ask yourselves: Are we burning cash? Are we generating cash?

     -Revenue

Factors to consider: sources of revenue, predictability of revenue, other competition

     -Profitability

Questions to reflect on: Are we profitable? How can we be more profitable? Have we prioritized correctly if our goal is profitability?

     -Costs

Aspects worth assessing: Are we capital efficient? Have we prioritized?

The process of planning and using rolling forecasts in addition to fine-tuning essential business components can have a vast and positive impact on the way finances are managed within your organization. For more assistance with financial management, please contact us here at Beck and Company CPAs.

Business financial management starts with a plan. If “business” can be summarized as the prioritizing of limited resources, how you manage those resources can make or break your business. What, then, are the best practices when it comes to managing your business’ finances? It starts with a look at your company’s current reality and creating or reviewing your business and financial plan to be sure it is complete. In a sense, this process is aimed at creating a culture of financial management that is essential to business success. Beck and Company Certified Public Accountants and Business Advisors can help you with these financial plans. Feel free to contact us and request a free consultation.

Current Reality: How do you manage your business today?

A financial plan can only be truly accurate and applicable if you first determine how your business is currently managed. By knowing what gaps exist or what elements need more attention, you know which parts of a financial plan need the most attention. Consider the following questions and how many can be answered affirmatively for your business.

–          Do you have a formal planning process?

–          Do you know what the drivers are behind historical trending and forward looking plans?

–          Do you know if resources are aligned with your revenue and profitability goals?

–          Do you know which employees are more effective than others?

–          Do you know which customers or sources of revenue are more profitable than others?

If you cannot answer yes to some of these questions, you’ll need to put your focus on those aspects initially when you make or add to your plan. Then, all you need to do is fine-tune the other aspects of your business that are already in place in your plan. Stay tuned next week for a deeper look at fine-tuning key aspects of your business’ finances.

Business Plan: An overview of what to include

Now that you know more about your current reality, you are ready to take a look at your existing plan or create a new one. If you have an existing one in place, be sure all essential components are included or add where necessary. A business plan should include the following: an executive summary of your company’s overall objective, mission statement, and keys to success. This should be followed by a company summary of ownership, history, and locations. Next, you’ll need a description of products and/or services that you offer. A market analysis summary of your target market, needs, trends, and growth in addition to industry and competitor analysis is another important part of this plan. You will also need a summary of strategy and implementation for pricing, promotion, distribution, and sales. Two other important elements of your business plan are a web plan summary including website marketing strategies and a management summary of the organizational structure and management teams. Finally, your business plan will need to include a financial plan. Let’s take a closer look at what this should include.

Financial Plan:

A financial plan is one of the most important elements of your overall business plan. All of the other elements of your overall plan that we just discussed should correlate to the finances. The plan creation or revision also encourages your business to be financially transparent and open. To learn more about the importance of financial transparency, visit here.

Within a financial plan, you’ll need to address important assumptions to ensure clarity and agreement. These should include timing (when to do your plan- calendar or fiscal year), prioritization of new initiatives, run rate versus new business mix, competition and cyclical variations and their impact, employee utilization rate, and fixed plus variable cost structure.

After the assumptions are laid out, then you’ll need to include other elements in your plan such as key financial indicators, break-even analysis, projections of profit and loss, projected cash flow, business ratios, and a long-term plan. These financial aspects combined with the business plan components comprise your overall plan.

If you are in need of support with your business and financial plan, please contact Beck and Company CPAs for a complimentary consultation.