Handling business finances can be overwhelming, and accurate, actionable reporting can be even more difficult.
Solid financial statements provide a clear picture of the financial health of your business to make strong, strategic decisions about your goals, priorities, operations, and investments.
Financial visibility is key to your business success, but how can you get there?
What Is Financial Visibility?
Financial visibility is particularly important for entities such as S-Corps and sole proprietorship in California, which have unique tax and financial reporting requirements. It involves knowing where your business stands from an income and cash flow perspective, as small businesses often have irregular cash flow and low liquidity – sometimes as little as weeks before running out of cash.
Gaining financial visibility gives you a comprehensive overview of your business’s cash position, which is crucial in a sometimes volatile business landscape.
How Much Financial Visibility Do You Have?
Here are some questions to answer:
- Do you regularly receive balance sheets, income, and cash flow statements?
- Do you understand what’s in these reports?
- Are these reports accurate?
- Do these reports have the level of detail you need to make informed decisions?
Your reports go beyond sales, gross margin, and net income, so you must understand all of the numbers and what they mean for your business.
How to Achieve Financial Visibility in Your Business
It’s clear why financial visibility is important, but it’s not that easy to get there. Here’s how you can achieve financial visibility in your business.
Use the Power of Data
Data is essential for your business’s financial visibility and for making better financial decisions. Put systems and processes in place to capture receipts and expenses and monitor your cash flow collectively instead of across disparate spreadsheets.
Data quality is another issue. Many platforms aren’t optimized for high-quality data, such as a bank or credit card statements that log transactions by numbers or something vague like “PoS.” if you have incomplete or inaccurate data, you won’t have a strong foundation for financial visibility.
Reduce the Delay Between Transactions and Analysis
Often, businesses allow gaps and blind spots to occur with practices like allowing employees to make business purchases and offering reimbursements. Without realizing it, you can rack up a lot of expenses that become overwhelming when you get the reimbursement receipts.
In addition, your data insights rely on the most current and relevant data. As data ages, it loses its relevance and usefulness. Therefore, it’s always better to get real-time data as much as possible with corporate cards or similar measures to understand spending in real time and avoid any tax surprises.
Automation is a huge benefit for financial visibility. However, manual processes are time-consuming, expensive, and error-prone, creating blind spots and silos in your visibility.
One of the biggest gaps with manual processes occurs in accounts payable, which involves manual intake, processing and coding invoices, approving invoices, initiating payments, and tracking transactions. This process is not only cumbersome, but it can lead to thousands of dollars in unnecessary spending.
The more steps you take in the process, the more chance something can go wrong. These errors can not only prevent you from seeing your business clearly now, but it can be expensive to fix later on.
Automation for accounts payable and similar processes can reduce your costs and streamline the entire process to reduce errors.
Eliminate Information Silos
Data accessibility is a crucial step to reaching your financial visibility goal. You and your team must have access to data to make strong decisions.
In many cases, there are huge barriers to data access. Data portability is important for your alignment, but many modern solutions make that more difficult. You can’t achieve that big-picture view if your clients can’t share data.
Establish a Holistic View
Key performance indicators (KPIs), such as the debt-to-income ratio, are important in any business. But financial status is more than just this one KPI, and that status can change from minute to minute, so they must be viewed in context.
It’s important to work with data management and tools encompassing different departments, products, channels, and customer segmentations to get actionable insights into the factors that directly and indirectly contribute to costs and profits.
Getting this holistic view ensures that everyone’s view is accurate and that you can zero in on important data as needed for informed decision-making.
Get Visibility into Your Business
Gaining comprehensive visibility into your business comes from insights and systems. Controlling the process and building a strong foundation with current, quality data can help you view your financial performance at a glance.
Also read: Tips for Managing Small Business Finances
About the Author: 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.