The human body isn’t just one limb, one muscle, or one organ. Our coordination is relative to how all these limbs, muscles, and organs work together. The knee bone connects to the leg bone, which connects to the hip bone, which keeps the body upright and walking.
A business operates in the same manner. It’s the sum of many parts and their efficient cooperation that creates overall well-being, with a company’s finances carrying significant sway over the rest of the organization’s functions. In fact, a CB Insights study predicts that 29% of small businesses close shop due to poor business spend management. Financial health paints a clear picture of how well managed a company is, which is why it is advantageous for stakeholders in every department to realize and respect the role they play.
When they do — and effective communication systems and financial management software are put in place — leadership gains visibility into every element affecting the company’s financial health so no surprises materialize. By bringing effective communication around financials into focus, a company is investing in its long-term health so that it can stay upright and moving.
Financial analysis deficiencies
How does your company keep financial health in perspective? Out of necessity, a vast majority of companies look to a part-time bookkeeper to act as their budget’s gatekeeper.
But your company is one of many on your bookkeeper’s roster, meaning they spend just a handful of days each month with your numbers and cannot commit only to your business! With that setup, financial data is being delivered through the rearview mirror—days or even weeks after it’s been requested. This means your decisions are constantly being made based on old data.
That workflow has been further disrupted by an influx of nontraditional decision-makers affecting the bottom line. There was a time when financial decisions were made by a handful of people at the top, but SaaS products and remote work have resulted in leadership empowering the average employee to make more calls on spending.
Decision-making is creeping closer and closer to the edges of a company, but communication is lagging. Just as well-being is assessed via regular checkups, a business’s bottom line won’t survive with sporadic monitoring. Real-time information sharing, financial data, and communication have to be at the core of your company’s financial health.
Otherwise, misinformation can lead to misguided actions that aren’t in your company’s best interest.
Don’t let spending sap your business
Unnecessary spending gnaws at your business, taking valuable income that could be reinvested and flushing it down the drain. To prevent frivolous spending and curb extraneous expenses, consider these three steps.
1. Keep employees in the know.
Financial literacy is essential at all levels of a company. Unfortunately, it’s one that 39% of employees and leaders are still learning, according to an Oracle study.
You might understand your financials well enough, but your team also needs to learn to speak the same language. Everyone doesn’t necessarily need to speak finance fluently, but anyone authorized to spend a dime needs to know enough to get by in the land of numbers.
Financial education is not an overnight process, so commit to consistent, ongoing, small doses of the conversation with your people. A companywide educational session will help get everyone on the same page. Then, company leadership — or a charismatic presenter who is comfortable with the information — can lead short, monthly financial meetings that go over the most important facts and figures about how money moves through your business to generate profit.
This tactic gives your team an understanding of the metrics that matter most to your bottom line and showcases how their own actions, decisions, and behaviors contribute to the whole.
2. Let data lead the way.
According to a Forrester study, 53% of respondents said they will give up on a purchase if they can’t quickly find answers to their questions. If your sales team lets inquiries go hours without a response, the data has shown that by the time they do respond, the prospect has already moved on or bought from the first company that replied to them.
These small inefficiencies — that work against the data — add up to a big impact on your finances. It’s worth taking the time to collect the data your business generates and examine how you could be leveraging your limited budget more effectively.
3. Put spending into perspective.
I mentioned that the financial wellness of your business is like your own health. Although a doctor can diagnose a broken bone using inferences and context clues, it’s a whole lot quicker and more accurate with an x-ray machine.
When making decisions that impact the financial health of your business, you want to be able to see inside the body of your business to gather solid and concrete information rather than working by assumption. Rely on financial management software that tracks expenses in real time so you can work with your accountants, bookkeepers, and employees to curb unnecessary spending and make informed financial changes.
The financial health of your business underpins much of your success. Even large, well-established companies operate on a finite budget. Taking stock of your own organization’s financial situation will help you maximize the growth potential of every last dollar.