The first thing you need to do is analyse your financial health.
You want to know where your money goes, what debts you owe, how long it takes to receive client payments and more. Also, it’s important to assess your company’s financial system, identify redundancies, and determine room for improvement.
This information can lead to better decision-making and guide your business in the right direction.
Plus, it could make it easier to raise capital. Investors will want to see your financial statements, so it’s in your best interest to have everything in place.
Harvard Business School recommends starting with an analysis of the balance sheet.
Pay close attention to your company’s liquidity, fixed vs. current assets, amount of debt, owners’ equity, and other critical data.
Next, check your income and cash flow statements to see the company’s profits and losses, investments, equity financing, and more.
This data can reveal where your business is, where it’s heading, and how it performed during a specific period.
Lastly, you must analyse key financial ratios, such as your return on assets, inventory turnover, gross profit margin, and coverage ratio.
For example, the return on assets (ROA) ratio measures a company’s ability to generate revenue from existing assets.
Ideally, you should aim for a ROA of at least 5%.
Compare these financial performance indicators across periods and see how other companies in your industry are doing. Look for trends and patterns to identify areas of improvement and uncover inefficiencies.