How to manage finances in business: key metrics and benefits of reporting

Every entrepreneur focuses on their product when starting a business—how to promote it and, above all, how to sell it. This is where the growth and value of the company are created. When things are going well, money flows and everything seems to run smoothly. Sometimes, however, growth alone is not enough. Business is booming, but there is no cash in the account or the company is in the red. And that is when the importance of financial management becomes most apparent.

What is corporate financial management?

Financial management is not just about keeping an eye on the accounts or checking whether invoices have been paid. It is based on actively working with figures that help you understand where the company's money comes from, where it goes, and how profits are generated.

With this information, you can make specific decisions based on data rather than relying on intuition. Well-designed financial management should identify problems before they become critical. Whether a company is planning to invest in a new project, increase capacity, or reduce costs, everything should always start with a discussion of the financial data overview.

Are you wondering when is a good time to start managing your company's finances? The answer is simple— preferably as soon as you start your business. And if that's not possible, then as soon as possible.

It is generally stated that it is advisable to deal with financial management:

• from a turnover of around CZK 2 million
• with the first employees
• when expanding the range of products or services
• when planning a major investment.

What are the cornerstones of financial management?

The financial management of a company rests on several pillars:

1/ Cash flow

Cash flow shows how money moves within a company. Even if a company is doing well and is profitable, it may have problems paying its liabilities. A lack of cash often causes problems before you realize it.

You should therefore monitor several important things:

• How long does it take for your customers to pay you?
• Do you have enough funds to cover liabilities that are approaching maturity?
• Do you have too much money tied up in inventory or accounts receivable?

It may happen that you purchase more inventory than usual or sign contracts for six months in advance, but your customers are late with their payments—and then you have a problem.

2/ Budgets and financial planning

A budget is a tool that allows you to plan your finances, prevent problems, and manage your business with greater confidence.

Thanks to the budget, you will know:

• how much money you can invest,
• where you can save money,
• whether the business is developing according to plan.

Follow these steps when budgeting:

3/ Tracking key metrics

If you want to manage your business based on data, you need to know which data is really important to you. Set your KPIs (Key Performance Indicators) – these help you evaluate the performance and health of your business.

There is no universal list of metrics to track. They will vary depending on the size of the company or type of business. However, typical indicators include:

• margin – the difference between revenue and the cost of goods or services, expressed as a percentage,
• EBITDA – earnings before interest, taxes, depreciation, and amortization,
• return on sales (ROS) – profit divided by sales, showing the percentage of sales that the company converts into profit,
• current liquidity – a comparison of current assets (short-term assets) and short-term liabilities,
• receivables/payables turnover period – describes the average time over a certain period during which receivables and payables are converted into cash.

Don't forget to update each metric regularly.

• For margins and EBITDA, it is recommended to evaluate and, if necessary, adjust the outlook once a month.
• ROS is usually updated quarterly, but it depends on the size of the company—for larger companies, a longer time horizon is sufficient.
• Current liquidity is a basic indicator of cash flow, so it is a good idea to monitor it weekly for smaller companies and companies with fluctuating results. Stable and larger companies usually do this monthly.
• The same applies to the turnover period of receivables or debts, which is evaluated weekly or monthly.

What role does financial reporting play?

The quality of a company's financial management depends on the quality of the available data and the overall context. However, it can be complicated to monitor all the necessary information in a timely and clear manner.

Manually maintaining tables in Excel may be sufficient for a smaller company, but it is no longer viable for larger companies today. If you have dozens of sheets in your "spreadsheet," thousands of rows of data, and Excel takes a long time to load, it might be worth considering a change.

That is why more and more companies are turning to automated financial reports that draw data from various sources themselves. The main source is usually an accounting system connected to an analytical tool such as Power BI. This tool can be used to create interactive overviews that provide information on sales development and cost structure or analyze the profitability of individual projects.

Everything is clearly visualized according to your needs and how you set up the reports. In just a few minutes, you can find out where the company is doing well and where there is room for improvement. Another big advantage is that the data is available interactively online at any time.

Example: What your financial report in Power BI might look like

We will help with accounting and add reporting as a bonus

Our clients can now use automated reports from accounting data in the Pohoda program connected to Power BI, which provide live statistics and monitoring of the above-mentioned metrics. If you are interested in how such reports could help your company, we would be happy to discuss it with you.

And if you are not yet our client, consider whether you want to get accounting advice from professionals. Reports from Power BI can be a nice bonus. Contact us using the form below and secure regular reporting that will enable you to improve the management of your company.