When the need for funding arises, we want to see healthy financial accounts from our clients so that we can provide a straightforward and professional service. Obtaining a satisfactory approval can be more challenging without clear and transparent financials. However, we (and our funding partners) consider more than a healthy surplus to service debt. All aspects of a company's financials and the stories it tells should be considered.

Any business' success and sustainability depends heavily on financial reporting. Each set of financial accounts tells a story about how a business is doing financially and how it is performing. It is crucial to regularly review a company's financials, as these can reveal valuable insights about performance that can drive informed decision-making and position a company for success.

Why is it important to review your business financials on a regular basis?

• Make informed decisions based on revenue and expense trends

A business owner or stakeholder can spot patterns, variances, and extraordinary expenses or events by analysing financial statements and comparing them with budgets and prior financial periods. In addition, this analysis allows you to identify what factors are contributing to revenues steadily increasing, fluctuating, or declining. A similar analysis can be performed on expense patterns to identify areas of overspending, inefficiencies, or potential cost savings. In order to capitalise on growth opportunities and address challenges efficiently, businesses need to understand these trends.

• Analyse margins and profitability

Profitability and profit margins should also be assessed in financial reviews. Business owners can determine whether their operations are generating enough operating surpluses to ensure long-term sustainability by comparing current financials to previous periods. Reviewing profit margins can identify any changes and prompt investigations into why those changes occurred. Businesses use analysis to make informed decisions about pricing, cost control, and resource allocation. Additionally, it can highlight the profitability (or lack thereof) of different product lines or service offerings, allowing businesses to focus on the most profitable areas and optimise their revenue streams. There is a lot of "margin squeeze" in the current economic environment. For many businesses, costs are increasing faster than turnover, resulting in decreased profitability. If margins are not sustainable for your business, honest conversations with my customers may be necessary.

• Plan for any shortfalls or surpluses in cash flow and liquidity

It is important for a company to perform regular financial reviews to gain insight into its cash flow management, liquidity, and equity position. This helps determine whether cash inflows are sufficient to cover expenses and debt obligations, ensuring the business's financial stability. Continual financial analysis can identify potential cash flow gaps or surpluses, allowing businesses to plan for working capital needs, funding requirements, investments, or expansion. For a business to remain sustainable and grow, effective cash flow management is imperative.

• Financial ratios and key performance indicators at your fingertips

Analysing financial ratios and key performance indicators (KPIs) provides valuable insights into a company's financial health, efficiency, and performance. Funders consider ratios such as liquidity ratios, profitability ratios, and debt ratios when evaluating a company's financial position. KPIs like return on investment (ROI), customer acquisition costs, and inventory turnover are also helpful in determining operational efficiency and effectiveness. Businesses can identify areas of improvement, benchmark themselves against comparable industry data, and align their strategies based on monitoring these ratios and KPIs over time.

• Identify and mitigate potential risks 

Maintaining financial reporting also serves as a risk mitigation strategy. Financial reporting helps businesses identify potential problems, such as cash flow challenges, profitability worries, excessive expenditures, or over-dependence on a single customer. Identifying issues promptly allows businesses to mitigate risks and take proactive measures to rectify them.

• Prepare your business for future funding needs 

Finance New Zealand can provide you with feedback about your financial performance relative to industry norms. In order to make applications for finance on your behalf to banks and finance companies, it's essential that we have good quality and current financial information. A funder is primarily interested in the credibility of the financial information provided, and assesses based on both historic and projected accounts. The main concerns of lenders are surplus cash flow after debt repayments, debt leverage (generally EBITD - Earnings before Interest, Tax, and Depreciation), and balance sheet equity. Our ability to receive funding approvals from first tier lenders offering good interest rates and terms depends on the quality of the information we have to work with.

Aside from ensuring compliance with legal and regulatory requirements, financial reporting provides vital information about your business, providing valuable insights that can help shape its future. We are committed to your business's future success and welcome the opportunity to work with you on your regular financial review. Contact us today to review your company's financials to ensure they align with your goals.