SME Times is powered by   
Search News
Just in:   • Adani Group to invest Rs 57,575 crore in Odisha  • 'Dollar Distancing' finally happening? Time for India to pitch Rupee as credible alternative: SBI Ecowrap  • 49% Indian startups now from tier 2, 3 cities: Jitendra Singh  • 'India ranks 3rd in global startup ecosystem & number of unicorns'  • LinkedIn lays off entire global events marketing team: Report 
Last updated: 27 Sep, 2014  

Finance.9.thmb.jpg Keep a close eye on financial performance

   Top Stories
» 49% Indian startups now from tier 2, 3 cities: Jitendra Singh
» 'India ranks 3rd in global startup ecosystem & number of unicorns'
» Tripura exported over 9K tonnes of pineapples in 2 years
» CPI inflation eases to 6.71% in July, IIP falls to 12.3%
» Rupee depreciates 12 paise to close at 79.64 against US dollar
Bikky Khosla | 18 Sep, 2012
What do you do to keep track of the financial performance of your business - this may seem like a puzzling question to many small business owners. Whoa! Do we really need to do that? Most of the small business owners will tell you that their smaller size doesn't need this. Lack of time and limited resources are cited by them as other prime reasons. There are so many things to look after, so many things to spend on, leaving not much time and money for doing "something extra".

This is a wrong approach. Whatever the size of a business, I think a firm should follow a formal accounting system, not merely for the purpose of producing financial statements which need to be submitted while applying for bank loans, but also to manage finances properly and monitor business performance efficiently. Secondly, every small business should implement some financial performance indicators and spend a few minutes every month to track what is happening in their business. Let's see why.

The results of your operating decisions appear in your firm's financial statements, and they can help you answer key and crucial questions like whether you will be able to pay off debt in time, how much debt your firm is using, are you getting a good rate of return on your assets, and so on. To get answers to these questions and understand the financial effects - positive or negative - you must have the basic idea about some key financial ratios like current ratio, debt ratio, inventory turnover ratio, etc.

Since the traditional financial reports are published quarterly, half-yearly or annually, I also recommend every small firm to regularly monitor some key performance indicators (KPIs) useful to financial management. Measures like Debtor Days (accounts receivables / sales x 365) that tells how quickly cash is being collected from debtors, Liquidity Ratio (cash and equivalent / current liability) that measures ability to turn short-term assets into cash to cover debts, Inventory Days (inventories / purchases x 365) that tells how many days the goods you purchase stay in your warehouse, etc. can let you know a lot about how you are doing financially.

For small firms, it is easy to ignore financial evaluation, unlike sales and operation, but by doing that they usually invite nothing but trouble. On the face of it, your finances may seem in order, but underneath the surface there may be something that needs your urgent attention. A performance evaluation mechanism in place will ring the alarm bell for your small business before a problem turns violent.
Print the Page Add to Favorite
Share this on :

Please comment on this story:
Subject :
(Maximum 1500 characters)  Characters left 1500
Your name:

Please tell me more
Sunil Tauro | Mon Sep 24 03:01:18 2012
Is there a software or calculation that is useful. Like taking care of inventories etc. Please tell me more.

Buy Back Scheme
Rajkumar Tulshyan | Thu Sep 20 14:54:09 2012
Is it advisable for small business houses to opt for buyback scheme for brand promotion? If it is advised,what precautions should be taken before announcing such buy back scheme.

Close Eye on Financial Performance
Kalyan Karmakar | Thu Sep 20 08:58:18 2012
Good that you are pressing the trigger for the small scale businesses. As now bank finance is very much available to the small scale businesses and due to lack of negligence to tracking finances, they may lose the valuable asset they pledge for securing the loan. 

Please advise
Ravi | Thu Sep 20 08:05:43 2012
This article has been an eye opener. Though i know my financial management is running smooth but at the back of my mind there's been a question always if they are happening the way they should. Can anyone suggest how to ascertain that if the financial management system in a SME is running right. Who do we need to hire to understand what has been happening financially and what should be rectified? Would a usual auditor suffice? Please advise. Thanks.

Your Topic on small business
Sunil Dadhich | Thu Sep 20 06:20:24 2012
Your suggestion on small business is very useful

Really we need to track
Sameer Ranjan Ghose | Thu Sep 20 06:12:27 2012
It's true that many firm's just don't goo deep. If marketing, sales are going well -- they are satisfied. But the fact is that we need to track the numbers -- at least in few important areas.

Sunil S | Thu Sep 20 06:06:44 2012
Can someone please tell me what should be the ideal ratios for those mentioned here.

  Re: Ratios
V. Choudhary | Thu Sep 20 06:08:27 2012
Debtor Days and inventory: The lower the better. Current ratio: An ideal current ratio would be 2. That is if you have Rs.100 in hand and liability Rs. 50, even if the current assets are to be reduced by half, you will be able to pay the money liability.

It is very useful suggestion
Dinesh V. Rathod [Video Editing] | Wed Sep 19 05:43:45 2012
Thanks. It is very useful suggestion but some time we purchase latest technology to be competitive and improve business but feedback is same, because clients have lack of knowledge & higher cost not accepted by them. Even showing demo of how we have improved work also not affect.

  Re: It is very useful suggestion
Shiva | Fri Oct 26 10:47:17 2012
You are right Dinesh. It's is the same case with us. Even after upgrading to latest technology we get the same margin. Customers don't understand. It is for us to reduce cost through labour or power.

  Customs Exchange Rates
Currency Import Export
US Dollar
UK Pound
Japanese Yen 58.85 56.85
As on 13 Aug, 2022
  Daily Poll
COVID-19 has directly affected your business
 Can't say
  Commented Stories
» GIC Re's revenue from obligatory cession threatened(1)
About Us  |   Advertise with Us  
  Useful Links  |   Terms and Conditions  |   Disclaimer  |   Contact Us  
Follow Us : Facebook Twitter