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Your business’s financial fitness is only as accurate as its last checkup. The frequency of these checkups indicates your company’s commitment and discipline to the study, review, and management of the company’s financials and key success drivers. Undoubtedly, income tax management and cash flow are critical, but they’re only a part of the financial analysis picture. Small and midsize business owners also must measure accounting metrics, know and track key business drivers, and prioritize and manage the analysis. Depending on the specific stage of the business life cycle, there could be varying indicators of success. For example, startups are much more interested in refining and rapidly growing revenue while concurrently stretching the cash flow runway through raising capital versus a growth-stage or mature company. Regardless of the stage in the business life cycle, below are five recommendations businesses should consider.

1. Educate Yourself

Knowledge is power, and a financial education is your management team’s strongest arrow in its quiver. Often called financial literacy, financial education is so important that if not taken seriously, it can contribute to an organization’s downfall. This education isn’t just learned through a business degree or seminar course; it’s a lifelong commitment. Your management team should work to understand and embrace financial education—then pass it on to employees. Empowering your employees to think like an owner may be the financial gift that keeps on giving—just don’t forget to share in the benefits.

2. Master Cash Flow Cycles

Understanding a business’s cash flow cycle is critical to an organization’s long-term success and viability. While simple in concept, lacking an understanding of the cycle can lead to cash flow shortages and contribute to an organization’s demise. Cash flow cycle management shouldn’t be reactionary based on a bank statement. Business owners should have a proactive mindset of prediction and budgeting. Whatever the business’s cash cycle looks like, a financial education can help build a financial forecast resulting in the development of a reliable 13-week rolling cash flow tool. View this archived webinar or download this resource to learn more about cash flow planning.

3. Use a Scorecard

The word “scorecard” implies a game, and although this is reality, similar concepts of competition, goals, measurement, and performance translate well to business. A good start to developing a financial scorecard includes the universally important categories of liquidity, sales growth, and profitability. Developing and tracking key performance indicators (KPI) for these metrics can help your organization measure performance. If you’re just starting out, a few reliable KPIs include the current ratio, gross margin, net margin, and revenue trend. Once you’ve built a general scorecard, look to enhance it by determining your critical or key factors for success and then incorporate these KPIs into your scorecard. Finally, be sure to balance the scorecard by tracking your business’s intangible strengths. For example, you can’t manage your employees by looking at spreadsheets, so look for ways to monitor, track, and improve employee engagement; you’ll be glad you did.

4. Plan & Manage Income Taxes

As your business grows and enhances profitability, you’ll soon find you have a silent partner, Uncle Sam. Income taxes can be paid throughout the year, but each year, the annual taxes are ultimately due at the statutory date. There are complex rules regarding the recognition and timing of income and deductions, and understanding the opportunities for incentives and credits is critical—especially in industries with a sensitive growth/decline cycle or when the overall economy is shifting.  

5. Find a Trusted Advisor

Wherever you are on the introvert/extrovert graph, people are social, and we need each other. Asking for help is a strength and sign of courage. While this is overly apparent for income tax due to the tax code’s complexity, it’s also true in times of financial struggle and distress. The key for businesses is to seek guidance from those they trust. Trust starts with expertise balanced with integrity and is one of the most important investments your business will make, so invest wisely.

So, where do you start? Small and midsize businesses don’t typically have the capital to maintain a chief financial officer (CFO), nor do many of these entities require a full-time CFO. Instead, leverage BKD’s outsourced accounting services team to assist you with this analysis on your schedule and terms.

We’re here to learn about your business, earn your trust, and provide trusted guidance. We assist small and midsize business, and your success is our passion. For more information, reach out to your BKD Trusted Advisor® or use the Contact Us form below.

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