Growing your business requires not only innovation and customer orientation, but also careful financial monitoring. Good finances are the lifeblood of business activities and a facilitator of growth. Financial monitoring and tracking and analysing the right indicators are key to making informed decisions, anticipating the future and ensuring sustainable growth.
Here are a few key indicators to monitor in a growth-oriented business:
1. Turnover – a measure of growth
Turnover indicates how much the business has sold over a certain period of time. This is one of the most important indicators for growth, as increasing turnover is often the first sign that the business is successful and attracting customers. However, it is important to remember that turnover alone does not tell the whole story – it is only part of the picture.
2. Profitability – the balance between profit and costs
Profitable business activities are vital for the sustainability and long-term growth of the business. There are many different ways of assessing profitability, but the basic idea is always the same: revenue must exceed expenditure. The profit and loss account is the most important tool for assessing profitability, looking at aspects such as operating profit, net result and various profit margins.
3. Cash flow – the lifeblood of business activities
Cash flow is one of the most important key indicators for a business, as it shows how much money is coming in and going out. A positive cash flow is essential for the ability of the business to pay its bills, invest in growth and take care of its financial obligations. Predicting and managing cash flow help the business stay healthy and vital.
4. Return on equity (ROE) – a measure of efficiency
Return on equity (ROE) indicates how efficiently your business uses the money invested by its owners to generate a profit. A high ROE may indicate that the business is in good financial health and able to deliver value to its owners.
5. Debt ratio – the balance between risk and growth
The debt-to-equity ratio indicates the amount of debt accrued by the business in relation to its equity. While the use of loans can support growth, excessive indebtedness can cause financial problems. Monitoring debt levels helps to ensure that the business has enough financial flexibility to operate and invest without the risk becoming too great.
How does financial monitoring support growth?
Continuous financial monitoring gives the entrepreneur valuable information, facilitating better decisions for business development. With a sound financial position, the business is able to invest in growth opportunities, take controlled risks and prepare for potential challenges. The aforementioned indicators also help to identify and react in a timely manner to weaknesses, such as profitability problems or cash flow shortfalls.
There is no need to fear financial monitoring – on the contrary, it is an asset. When the finances are transparent and understandable, the business can create a solid and healthy foundation for growth. The indicators are like a compass to steer your business in the right direction.