Tweet

Assessing your company's financial position

Guest post by: Rene Truter

Article Overview: If you're not so clued up about the accounting and financial side of your business, you may not realise how an in-depth financial analysis can benefit your company. Learn how to get the most out of your financial information.

Assessing your company's financial position

You may think that because you have good bookkeeping and accounting processesin place and your cash flow is under control, you can sit back and relax. Unfortunately, you'd be wrong. Thisis the perfect time to do an in-depth analysis of where your business stands financially.

A financial analysis should be undertaken on a fairly regular basis - perhaps quarterly - so you know where your business stands tomake informed decisions and plans for the future. It's also necessary if you're looking for investors, for example.

Getting the most out of your financial statements

Your company's financial statements will be your first point of reference for the assessment. These include the income statement, balance sheet, statement of changes in financial position and statement of changes in owners' equity.

You may decide to call a financial expert in to help you with this process, but even so, it's important that you understand the financials and what they reveal about your business. Don't be intimidated by all the information. Just take it one step at a time.

It's a good idea to have your financial recordkeeping done by a professional who knows about the labour and tax laws that need to be complied with. Once you have the statements, you can:

• Identify any negative trends in your operations so you can remedy the situation before it becomes critical
• Keep an eye on your cash flow requirements to identify financing needs early
• Monitor important indicators of financial health(such as liquidity ratios, efficiency ratios, profitability ratios and solvency ratios)
• Look out for increases and decreases in wealth (specifically your or your stockholders' equity)
• Monitor your performance against your financial plan, if you have one

The financial statements thatwill help you determine the current status of your businessare:

• The income statement reveals the money you've make during the accounting period, the costs or expenses that were incurred, the difference between the costs and incomes for the period, or net profit (or loss)
• The balance sheet is a statement of a company's relative wealth or financial position at a given point in time. It shows assets, liabilities and owners' equity
• The position statement, also known as the "statement of changes in financial position" or "sources and uses of cash," helps to explain how a company acquired its money and how it was spent
• The statement of changes in owners' equity is used to bridge the gap between the amount of owners' equity at the beginning of the period and the amount of their equity at the end of the period

Your financial statements are only the foundation for your analysis and they won't provide all the info you need. For example, if your statements show that outstanding accounts have gone down over the last few years, it either means that you're being more proactive about your debt collection process, or that you are writing off bad debt too soon.

This is why it's important to look further into some of the trends revealed in the statements and find the reasons behind them.

Copyright© 2010 Business Partners Ltd. All rights reserved.

Related Articles
  Failure Is Not An Option
  Some Home Based Online/Offline Money Making Ideas Which Can Be Profitable
  Article # 21 Can’t Sell Or Talk On The Phone But Own A Business?
  Unique Canadian Cash Flow Financing & Working Capital Loans - Finance Options
  Financial Reform Bill Diversity Requirement Has Challenges
  How Much Should You Spend on a Business?
  ROI: Return on Investment or Return on Illusion?
  The Soft Side of Managing Talent is About Making Hard Choices
  ATO tax break could cost companies dearly
  How effective is your Advertising?
  Report presentations to provide clarification of your financial position
  Financial Analysis
  Split-Testing for Assessing the Performance of a Website Design
  Business Value
  How to Avoid MLM Failure
  Canadian Lenders In Franchise Finance – Lending & Funding Options For Franchisee Financing
  Good Decisions Around A Commercial Business Financing Loan In Canada – Canadian Lending Options
  ATO tax break hides a financial sting
  Franchisee checklist - assessing the business type
  Marketing Accommodation Options to Mature Age Prospects.

Article Tags: accounting, cash flow, finance, financial, financial information



Related Forum Posts
Re: Social financing solutions... - CFS can assist social landlords in coming up with practical solutions to combat financial exclusion among their tenants and the local communities where they operate. In the past 10 years, we have worked with a wide range of social landlords, including Trafford Housing Trust, Golden Gates Housing and Southern Housing Group. Based on our expertise in housing and financial inclusion, we offer a range of research and advisory services to social housing landlords: * Needs and gap mapping: We can map the nature and extent of financial exclusion among tenants to help social landlords direct resources where it is needed. * Service provision gap identification: We can map and identify gaps in the provision of financial services, and money and debt advice, and advise social housing landlords on how best to fill these gaps. * Assessing effectiveness of existing interventions: We can help landlords estimate costs of financial exclusion, in the form of evictions and lost rent income, calculate savings in implementing financial inlusion interventions and advise on how to improve existing interventions. * Solutions development: We can help social housing landlords develop practical solutions to problems such as over-indebtedness, arrears and financial exclusion. * Stakeholder engagement and management: We can advise on, facilitate and organise stakeholder engagement events to underpin financial inclusion interventions.............
Re: How should a young entrepreneur dress to impress? - Hi I find that now many jobs are not actual face to face with their clients most is done over the phone or web and not always in the same town, state, or even sometimes country so dress has become less of a deal breaker. However, I find as a rule of thumb for the office just dressing according to the companys basic guidelines (business casual or formal) and then when you do meet a client dress to impress.
Re: What Businesses to Bail Out? - Very true - I agree that only certain businesses will be "rescued". Sad for the American public that its the companies who are billions+ in trouble. It has certainly been a bad week in the US financial world. I was even watching special coverage of an overseas financial market last night. Lots of ripples through the financial community. Its sad that nothing is in place to actual oversee and truly regulate the financial industry. To many people refuse to be accountable and they leave the rest of us holding the bag. Shri
Re: Job market slump is a guy thing - [quote="OmnivoreInk":2tdtzksx][quote="BuzzAroundBooks":2tdtzksx]Doesn't seem to me like this woman is very smart.. you don't apply to be a receptionist while you're drivng a BMW! Unless it's a receptionist for Donald Trump or some super-rich corporation, I suppose... I think, for many people... the woman is getting the second job in a marriage or whatever...and so doesn't need to make as much money as the man, who is still the primary provider for the family and can't afford to take a lesser paying job, since 99% of all people live up to the nth degree of their income ...[/quote:2tdtzksx][/quote:2tdtzksx] Well just because someone drives a BMW doesn't necessarily mean that he/she is rich. A lot of people live outside of their own financial means. Moreover, without personally knowing the woman with the post-grad degree and her circumstances, it's hard to judge why she applied for something below her. A friend of mine who I used to work with had a MBA, but he hid that fact from our company at first because he was applying for a "lower" position. But once he established himself, he revealed that he had a MBA was later promoted to a "high paying" business analyst role. You see, it was all a part of his strategy since he didn't have his Canadian Citizenship yet, and knew that he wouldn't have been hired at the analyst position to begin with. Sometimes you need to take a lower position, just to get your foot in the door with a company you want to work with.
Re: Kevin's Case Study #8 - How do you attract a finance expert? - [quote="BuzzAroundBooks":2aaheo2o]How do you attract a finance expert to come and work for your small business? The reason I ask is because I know of someone who is looking for help in managing the numbers in her business plan and obtaining financing. Moreover, she is looking for an individual (or accounting firm) who would be interested in working as a "part-time" CFO or a hands-on, entrepreneur friendly accountant that will work with her company and take it to the next level. Thanks![/quote:2aaheo2o] I used to be in a BNI group in Virginia and there was an accounting firm in the group who had several specific accountants in their firm who did this sort of thing. They are a big firm and could have a couple of people out of the office on a regular basis - since they did this for different companies. If I was looking for someone to do this, I would put together a financial business plan which included a proposal and details for the position I wanted to fill. Make it clear what is needed, what you want to accomplish and compensation and/or incentives that are being offered with this position. It would also be good to call local accountants to see if they currently offer this service and if they are considering new clients. Chris


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Is the Media to blame for losses in super?

How to sell a business

SEO and the Entrepreneur

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.