8 Key Things Your Financials Can Tell You About the Health of Your Business

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Poor financial management skills is one of the biggest reasons why businesses fail, but the fear of failure is not the only case for maintaining good financial records.

Well maintained financial records help to provide an accurate picture of how well your business is performing, says Cohen Chakwizira from QuickBooks, and can also help business owners make more informed decisions.

Chakwizira shared this at the recently held Finance Indaba in Sandton, Johannesburg.

To gain key insights, some of the documents business owners should be generating are a statement of income, balance sheet, profit and loss statement and cash flow statement.

Here is important information you should be getting from your finances. 

1. Estimating capital requirements

Determining the amount of capital you need to start a business or if you have enough cash reserves to fund the operating cycle.

2. Determining capital structure

Capital Structure determines how operations and financing of assets within a company are funded, either debt and/or equity.

3. Estimating cash flow

See if you have enough cash on hand to meet obligations like payroll, rent and other expenses.

4. Investment decisions

There are various ways that business owners can invest. From acquiring a new business and capital investments to real estate. Your finances will let you know whether you are in a position to make investments.

5. Allocation of surplus

Help you to make a decision on whether to reinvest, spend or expand with excess cash available.

6. Deciding additional finance

Get help deciding whether you should opt for an overdraft, factoring where you “sell” your entire debtors book to a bank or or invoice discounting.

7. Negotiating for additional finance

Traditional finance institutions will assess the risk of lending you money. Solid financial management will stand you in good stead, and will give you room to negotiate.

8. Checking the financial performance

Well-maintained financial records can provide vital information about the state of your business, whether you are ready to expand or if tough times are ahead.

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Lebohang Thulo
Lebohang Thulo
Lebohang Thulo is the editor of SME South Africa. She enjoys keeping up with the country’s exciting and fast developing entrepreneurship ecosystem. You can find her at @lelele3