A huge component of running a business is managing the financial performance of that organization. It's so vital because financial performance management not only tells you how your business is performing right now, but informs you on what ways you can grow your business in the future.
From the lens of a business owner, financial performance management refers to the ways a company handles and maintains the financial results of their organization. The primary purpose of financial performance management is to compare actual results to budgets and forecasts and make adjustments accordingly. As a result, companies are better equipped to meet their business goals and adjust their strategies. Financial performance analysis makes a large impact on the long-term success of an organization at meeting its financial objectives.
In this article, we’re going to explore everything you need to know about mastering financial performance management as a business owner or key stakeholder. We’ve defined which financial key performance indicators you should keep an eye on and what steps you can take to perfect your financial performance analysis.
Financial performance is a subjective measure of how well a company can use the assets it gains from its business operations and turn those assets into generated revenues. The term financial performance management is also used as a general measure of a business’s overall financial health over a predetermined period of time.
Sounds great, right? So, how do businesses perform a financial performance analysis? They do so by evaluating the business’s progress with financial key performance indicators. These financial key performance indicators are metrics that organizations use to track, measure, and analyze the financial health of the company. They fall under a variety of categories, including profitability, liquidity, solvency, efficiency, and valuation. Some of the most commonly used financial key performance indicators by growing businesses include net income, cash flow, return on investment, total assets, total liabilities, and total equity.
By understanding these metrics as a business owner or key stakeholder, you can be better positioned to know how the business is performing from a financial perspective. You can then use this knowledge to adjust the goals of your organization and contribute further to critical strategic objectives. It’s possible to glean some of the benefits of comprehending financial performance measures as a business owner from the information above. Let’s cover them more in depth below.
Financial performance management provides a number of benefits to organizations looking to grow their revenue and better understand their financial health. Here’s why:
The financial performance management process can look different for organizations across a variety of industries and in various stages of growth. However, financial performance measures can be typically split into four key steps: identification, monitoring, data interpretation, and reporting.
Mastering these four key steps will harness the potential for success within the world of financial performance management. Let’s cover the details of each financial performance management step below.
The first phase of financial performance analysis is to identify your goals and determine your strategies. Organizations set strategic goals that align with their financial objectives. These goals include identifying key financial targets, setting budgets, determining financial key performance indicators, and developing plans for improving financial performance. This phase can be conducted with a business advisor to optimize growth, or with key internal stakeholders.
Once targets and goals have been identified, organizations will move into phase two: monitoring. The monitoring phase involves collecting data from internal and external sources like inventory tracking, customer reviews, financial statements, and changes in assets/liabilities. This phase is all about tracking financial key performance indicators over time. Consistency is key here, so set a defined period of time for your monitoring phase and be sure to keep track of the financial key performance indicators you identified in the phase prior.
With good data monitoring comes an even stronger analysis of that data. The third phase of financial performance management involves interpreting the financial data you acquired in the monitoring phase. During the data interpretation phase, you will analyze collected data on your business to identify trends, and patterns. Additionally, the data interpretation phase is where you’ll be able to pinpoint which improvements you need to make to your organization or its structure to ensure growth and success over time.
Finally, the last phase you’ll need to master financial performance management is the reporting phase. This will come after identifying financial key performance indicators, monitoring the progress of those financial performance measures, interpreting that progress, and proposing changes.
During the reporting phase, you’ll present the collected and analyzed data in a format that is easy to understand and can be referred back to in the future. Also, you’ll use this phase to begin identifying new financial key performance indicators you’ll want to measure in the future. You’ll use this phase to repeat the process of financial performance management, honing each phase to better suit your business needs over time.
The financial performance management process is an important tool that organizations use to ensure that their financial objectives are met. It helps organizations to identify areas of improvement and develop strategies to improve their financial performance. Additionally, it provides organizations with the necessary data to make informed decisions and ensure that their financial goals are achieved.
At 4Corner Business Services, we understand just how important mastering your financial performance management can be for you. That’s why 4Corner Business Service's team of experienced accounting and business consulting experts provide you with the tools and financial information you need to make critical financial performance analysis decisions as the owner of a business in Denver, CO.
Allow us to be the experts on financial performance so you can focus on growing your company. We can assist in helping you identify which financial key performance indicators you should be tracking. We can also provide a financial performance analysis for your business so you can focus your efforts further on growing your organization.
In addition to business consulting services for small and large businesses, 4Corner offers support in choosing and using accounting software, professional tax services, and valuable bookkeeping services to guide decision making. We help businesses both large and small implement proven growth strategies so you can turn our accounting and bookkeeping services into revenue successes.
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