Your finances are instrumental in understanding the health of your business. As such, you must regularly review your finances.
By checking your finances, you will be able to learn many things about your enterprise: how much you are spending on supplies and salaries, how many sales you are receiving, the profit you are generating and the share value for investors. This makes it a great way to determine whether you are following the intended trajectory and achieving your goals.
It will also put you in a position to spot any red flags and address them ahead of time, such as utilising financial support when you need to and realigning your operational strategies.
When you are reviewing your finances, it is vital that you do so extensively and in consideration of all the relevant factors. This will ensure you get an accurate insight into your accounts, which can be analysed to determine the success of your enterprise and where adjustments need to be made.
In this blog, we have outlined how to conduct a business review correctly to get a full comprehension of your financial state.
- How often should you review
- Review internal reporting
- Gather documents
- Compare internal and external records
- Gauge the threats
How often should you review
Your finances change on a daily basis, depending on your sales and costs. As such, it is advised that you review them frequently. The exact frequency may vary depending on what works best for your operations, but at least monthly is a good rule of thumb.
You should also review your finances at specific times depending on business need – for example, ahead of investor meeting or planning session.
By checking your finances regularly, you will be able to see how they fluctuate from month to month and get a sense of the patterns. For example, a low month for sales may be a one-off, but continued declined sales would be a more significant cause for concern. You will also be able to monitor the growth of your company and see whether critical metrics are moving in the right direction towards your goals.
As well as checking your finances, you should also document it. This will allow you to build year-on-year reports that eventually cover your entire financial history – these can then be looked back on to analyse trends (such as seasonal peaks) to use as future benchmarks.
Review internal reporting
When compiling a review into your finances, you will need to collect documents from across your departments that showcase the position of your business. These could include:
- Sales figures
- Supply invoices
- HR salary data
- Company current account statements
- Profit and loss statements, including your balance sheet
- Employee expenses
- Investment and shares information
- Details of any debt owed by you
- Financial forecasts
As you rely on this information, it is vital to reflect on your internal reporting structures and make sure the correct data is being passed onto the right people, via the proper channels.
If you do not have reporting processes in place already, you need to identify the information you wish to receive and build strategies that allow this data to be received regularly. Examples of this could be end-of-month reports from the relevant departments. Conversely, if you are a smaller company and are undertaking this yourself, you need to understand where to source this data and create reminders to run the reports for each month.
Once you have identified the reporting processes you wish to follow, you need to make sure the relevant team members are fully trained up on the protocol and are providing you with accurate, truthful data. This will make conducting your review much more manageable and ensure all the elements are accounted for.
Gather documents
The next stage of your review is gathering the documents you need to get full insight into your finances. Start by creating a list of the different data you need – such as departmental reports, bank statements, sales data, loan balances and external documents from your suppliers and other expenditure information.
Your reporting processes should account for the documents you need and ensure the relevant people send on the information to you ahead of the scheduled date of your audit. Some external providers, such as your bank, may even provide the documents you need on an automated basis, and you could even set up internal automation to match.
Once you have received the data you need, you should ensure you know the role each will play in the overall review, so you know what needs to be checked in which order. It is also worth having previous reports to hand so you can compare and contrast as you go.
Compare internal and external records
Another important factor when reviewing finance is ensuring that your internal and external records match up. For example, your internal sales figures and expenses should align with your bank statements.
When you have gathered the documents you need, it is best practice to give them a thorough check-over to make sure that everything is consistent and that there are no discrepancies between reports from different sources.
If there are varying statistics or information between your internal and external records, it may be a sign that something has gone wrong in the reporting. For example, it could indicate that your internal departments have miscounted or overestimated your sales or expenditures. Equally, it could be a simple technical issue that needs to be ironed out. You should therefore investigate the reason behind the mismatch and seek the accurate data before compiling your final review.
Even if it is a small discrepancy, it is still worth identifying and solving the issue behind the variation, as it may re-occur on a worse level when you next conduct a review.
Gauge the threats
An adequate review should consider the external context behind your business and determine the role this plays on your finances. This means understanding the risks posed to you and the effect they may have.
When reviewing your finances – and perhaps even ahead of your review – bear in mind any potential threats that your business may be facing. This could include a seasonal lull, reduced customer demand, increased supply prices, changes to your offering or other external factors, like Brexit or COVID-19.
Once you have reviewed the data, aim to determine whether these have impacted your finances – such as fluctuating sales or increased overheads. Depending on the level of the threat, you may wish to put contingency plans in place which detail how you will deal with the risks and reverse the impact on your finances. You will also need to continue to monitor it through future reviews to see the extent of the issue.
Be sure to create commentary for your reviews that explains the context. This will enable you to look back on them with a full understanding of why the figures varied during that particular period, as well as use them as a baseline should you run into a similar problem again.
Get advice
Conducting regular, comprehensive financial reviews carries many benefits. It allows you to understand your position, react to threats ahead of time, monitor trends and patterns and keep updated with the direction you are moving in. Beyond this, reviews can be used as a tool to assess your business strategies and growth plans, ensuring that things are following the right path and alerting you of any potential obstacles.
Another advantage of conducting a review is that is highlights any gaps in your finances that may be filled through funding. This enables you to identify the support you need, ahead of time, to keep your enterprise on stable ground and focused towards your goals.
If you need help understanding your finances or accessing the funding solutions you need to boost them, we are here to help. Our team of advisors have experience working with businesses across sectors and various financial challenges, so we can provide bespoke guidance for you.