Do you have visibility into your business’s finances? If there are blind spots, you could be missing key information about the ebbs and flows of your business cash and miss important opportunities for growth and profitability.
Maybe you focus on a few financial statements on a regular basis, such as your cash flow statement or profit and loss statement, but these don’t give you a full view of your financial standing.
Financial visibility should be on every business owner’s radar, but you have to have a plan to achieve it.
What Is Financial Visibility?
For businesses like sole proprietorships or S corps in California, financial visibility is an important component of the tax and reporting requirements for these business structures. Having a comprehensive view of your current financial standing, including income, expenses, and cash flow, gives you the knowledge to prepare and adapt. Otherwise, you could be only weeks away from running out of money without even realising.
Financial visibility covers every aspect of your business’s finances to ensure you know what’s going on at all times – keeping you agile when things change or new challenges come up. You can also pounce on opportunities as they arise if you understand your business’s profitable periods.
Evaluating Your Current Visibility
Creating a strategy to improve your financial visibility begins by assessing where you are right now.
Take a look at financial statements like your balance sheet. This provides information about your operational efficiency with your assets and liabilities. You’ll also see shareholder equity, which is important if you work with investors.
Another important review is your assets and liabilities, which are divided into current and non-current items. The current assets are assets with a lifespan of less than a year, while the non-current assets are the ones you own outright, such as land or intellectual property like patents and copyright.
Your current liabilities are the financial obligations you have that will need to be paid within a year, such as tax bills, short-term loans, or invoices from suppliers. The non-current liabilities are financial obligations you will need to pay over a longer time frame, such as deferred tax payments.
Your current ratio should be included in this evaluation, which you can calculate by dividing your current assets by your current liabilities. Compare to benchmarks in the industry to see how your business measures up. Pay close attention to your cash flow and whether you’re bringing in a lot of money or close to running out.
How to Improve Your Financial Visibility
With a clear view of your current standing, you can develop a plan for financial visibility. Here’s how:
Rely on High-Quality Data
Data is a key aspect of financial visibility and decision-making. Develop systems to track your expenses and cash flow, then store all that information in a centralised, accessible location to view it comprehensively.
The quality of your data matters, remember. Your data needs to be clean, current, and relevant to be useful. Some accounting platforms, such as real estate accounting platforms or other industry-specific solutions, offer data analysis tools that ensure you’re working with timely data, but not all of them. You may need to clean the data yourself.
Analyse Transaction Data When Transactions Occur
Tracking expenses is an important part of your financial visibility and avoiding costly issues in the future. If you allow employees to make purchases for your business and reimburse them, for example, you could be missing a lot of expenses that add up over time – which is a big shock.
Accurate analysis requires timely data with current information about your business’s financial standing right now. Once the data ages, it’s not as useful for your decision-making process. Try to gather real-time data as much as possible and create and implement systems that track your spending. When you have systems, you won’t be surprised by expense and end up overpaying on your taxes.
Manual processes may be comfortable, but they’re time consuming and error prone. For example, accounts payable involves a lot of preparing invoices, putting them through the approval process, initiating payment, and tracking those payments to handle disputes.
As expected, this is a big administrative burden that wastes your resources – resources that you could use elsewhere. Automation is a great way to eliminate this manual burden and free your staff to focus on tasks that can grow your business, not to mention reducing the risk of errors and gaps in your visibility.
Eliminate Information Silos
Data is useful, but it all comes together to give you insights into your financials. Looking at one metric on its own won’t help you interpret the information in context, leaving you with missing pieces that can dramatically impact your decision-making process.
There are often barriers to data access that create information silos. Usually, this is because of poor data portability, but there are solutions that ensure everyone has access to the same data if they require it. If you were thinking of upgrading, now may be the time to consider it and seek out solutions that allow employees to copy or transfer data from one environment to another.
Gain a Comprehensive View
Your metrics and key performance indicators (KPIs) inform your financial visibility and decision-making – as long as you interpret them collectively. Data management solutions with features that support different departments, products, and channels give you all the context you need for your data to understand it completely.
When you’re looking at the big picture, you can identify patterns that inform your profits, cash flow, liquidity, and more, even if the effect is indirect. Then, you can make decisions about your business without missing important details that can affect your success.
Move Toward Financial Visibility
Financial visibility is important for business success, but many business owners either don’t understand its value or don’t know how to implement systems to provide a comprehensive view of their financial standing. With a strong foundation and clean, relevant data, you can gain vital insights into your financial health.
Name: Shahar Plinner
Shahar is a tax and accounting expert with over 20 years of experience in the field. He is an entrepreneur and known as The Tax Guru on the west coast. Shahar moved to Seattle from Israel and founded, scaled, and sold a leading tax and accounting firm in the Seattle Metro area. Over the years, he served thousands of business owners and perfected the playbook for self-employed tax strategy. That’s why he founded Formations, to make sure the self-employed never overpay on taxes again.