Is it really that important to have up-to-date financial information?
Of course it is!
And this is why:
If you don’t know what is coming in, how do you know you can pay what needs to go out? Knowing your current debtor position and historical payment trends allows you to determine an appropriate level of working capital (cash in the bank) to ride the worst of bumps and not be scratching for cash.
Perhaps a simple income to expense ratio (income/expenses) can determine the health of your cashflows.
2. Decision Making
Without analysis of your current financial information and historical data you are not going to be able to make future business decisions.
When is the best time to purchase plant? – how to structure the timing of the repayment?
Do you have the financial health to be able to invest back into your business to grow, employ the next team member or pay yourself a bonus or dividend. Current financial reports give you not only a snapshot of where your business is at now but shows how you reached that point.
For example, through trend analysis you are able to time a marketing campaign for the best outcome.
If you have taken the time to set some business goals, the last thing you want to do is wait 12-18 months before you know if you reached the goals or met your Key Performance Indicators (KPI’s).
Real time, up-to-date reporting allows you to be accountable and hold your staff accountable. Early detection of both success and challenges in business allow for the successes to be celebrated and on those occasions when things aren’t working, allow for early intervention to minimise the impact of those challenges.
4. Financing Opportunities
In the banking game there are the 5 Cs that help you determine if finance is approved or declined:
Up-to-date/real time financial or management reports will go a long way to proving compliance with all of the ‘Cs’.
- Will show character – are your creditors being paid on time?
- ATO Obligations
- Superannuation Guarantee payments
- In summary are you acting in good faith and with good character?
- Will show capital, how much money is invested in the business, what is the debt to equity ratio. What is at risk within the business?
- Will allow the bank to see what collateral is available to secure their proposed lending
The Profit & Loss
- Will show capacity through both cashflow and profit to satisfy a lender you are able to cover both the principal and interest on borrowings.
- The Profit & Loss will also go some way to showing conditions for the loan. Is the business needing working capital, a strategic asset purchase? Has the business sector shown growth over time to support the loan?
Reliable, up-to-date financial information to hand will give a financier confidence to make the right lending decision for your business.
5. Tax Planning
When it comes to tax planning it is important to have real time information to enable quick analysis and decisions that are in the best interests of the business, whilst minimising taxation. If the information isn’t right the outcomes might not suit – it’d be like turning up to a funeral in a Hawaiian shirt.
Timely and accurate information is the lifeblood of any successful business. It is always easier to make a decision when you have all the relevant information at hand that enables full and robust analysis of the options.
By: Myf Rigby