Finance and Accounting
The importance of periodic financial check-ups and how to conduct them
Periodic financial check-ups are essential to ensure your organisation remains on a stable footing and can navigate any economic uncertainties. Financial check-ups involve regularly scrutinising financial statements to verify that the business is financially stable, operating efficiently, and managing resources correctly. Business owners may choose to have in-house teams schedule and conduct these financial health checks periodically or opt to rely on third-party financial advisory services. The latter brings with it the specialised expertise to offer strategic advice for better financial management.
Why are regular financial health check-ups important?
Monitoring your business’s financial health is a critical aspect of running a business. Let’s look at the primary benefits of conducting regular financial health check-ups.
Financial stability
An organisation’s long-term success and growth are closely tied to its financial stability, and regularly reviewing cash flow, account records, and other financial indicators is key to maintaining this stability. These check-ups can easily identify cost-saving opportunities, while potential financial issues can be detected early and addressed before they escalate into full-blown crises.
Informed decision making
Information gathered during a financial check-up provides valuable insights that contribute to making sound strategic business decisions. These decisions may impact expansion plans and marketing strategies or involve modifying the products and services offered.
Risk management
Risk is a part of every business; however regular financial health checks can help highlight and mitigate various types of risk your organisation may be susceptible to. Proactively evaluating risk factors during financial health check-ups is a major aspect of risk management and can ensure financial security and stability even in the face of unexpected circumstances.
Adaptability
Laws and regulatory compliance requirements are constantly changing, and financial health checks can keep you updated on such changes. Ensuring regulatory compliance not only avoids legal hassles but also ensures that your business stays competitive and ethical.
Uncover inefficiencies
Financial health checks are a great way to boost operational efficiency since they closely scrutinise various activities and processes. This has the potential to reveal issues within the organisation that may be negatively affecting performance and efficiency, giving decision-makers the opportunity to refine and optimise processes to boost operational performance.
Business growth
The long-term goals of any organisation are consistent growth and increased profits. Regular financial checks provide businesses with the tools, information, and insights required to assess performance and make the changes necessary to achieve established goals.
Conducting periodic financial health check-ups
Implementing effective strategies for conducting periodic financial health check-ups is crucial for ensuring the long-term success of any organisation. Here are five prominent strategies that can help set up and conduct financial health checks for your business.
Pay attention to historical performance
It’s always a great idea to review previous years’ performance metrics and KPIs, such as cost growth, revenue, profit margin trends, and more. This provides a comprehensive overview of the business’s financial health year on year, exposes strengths and weaknesses, and offers the opportunity to establish proactive strategies to manage your business finances efficiently.
Establish goals and KPIs for the coming year
Clearly define goals and KPIs that relate to your business’s financial health. These could include aiming for specific annual revenue growth metrics or an increase in your customer base. Doing so will help you create a roadmap towards optimising performance in line with your goals.
Identify weaknesses and vulnerabilities
Conducting a detailed SWOT (strengths, weaknesses, opportunities, threats) analysis is an efficient way to uncover issues that may negatively impact on operational performance. Proactively addressing these vulnerabilities can prevent similar issues from popping up in the future.
Create cash flow projections
Creating accurate projections for anticipated cash flow over the coming year can help establish realistic financial goals. This approach enables business owners to identify their excess cash flow capacity, which is additional available cash that isn’t allocated to spending or savings goals.
Conduct strategic cash flow planning
Regularly monitor your cash flow to ensure you have sufficient liquidity to meet your obligations. Identify patterns in your cash inflows and outflows to manage working capital effectively. Strategic cash flow planning is an excellent way to enhance your organisation’s long-term financial health. By leveraging excess cash flow and directing these funds to areas where they can have a positive impact, you can significantly improve your financial stability. It’s always wise to have a plan for unallocated cash flow, whether it’s to pay off high-interest debt or to invest in new equipment for the business. This proactive approach ensures that every available dollar contributes to the business’s financial well-being.
How can Infosys BPM help in financial health checks?
Infosys BPM provides comprehensive financial advisory services covering a wide array of financial processes. These solutions leverage technology and analytics to reduce processing costs and manage volume fluctuations according to client preferences. With deep domain expertise and extensive BFSI experience, we offer robust financial planning and analysis services, including detailed reporting on AUM, cash flow, business metrics, and budget forecasts to help clients achieve top quartile performance.
