As a Managing Director or CEO, knowing where your business is heading financially is crucial. And to do this, you need information. After all, the financial management information you have on your company will feed into all decision making in the future. But what is management information and what data should you be collecting?
What is financial management information?
Management information, in general, is a term used to describe data relating to a business's everyday activities. Each department will have different management information they require to help fulfill their role. For example, management information might include customer reviews (marketing), inventories (operations), or work attendance (HR).
Financial management information is more specific, but still covers a broad spectrum of data – and every business’ needs will be different. What is essential financial information for one business will be useless in another. Each organisation needs to work out what they need to track for themselves. A good place to start is to explore the key management information questions to ask your business. We’ve put this together in a handy infographic.
On the other hand, most businesses do have similar visions when it comes to their finances – they want to grow, increase profitability, and boost their market share. If this is the case for your organisation too, here are the 6 key types of financial management information your business should be collecting.
The 8 types of financial management information to track
1. Cash flow statements and forecasts
It goes without saying that cash flow management is fundamental to SMEs – and yet many do not keep accurate cash flow statements or create sufficient forecasts. How can businesses expect to truly understand the financial health of their business without the right tracking tools in place?
For an accurate picture of your business's current (and future) financial performance, cash flow management is one of the most important metrics.
Learn about the importance of cash flow forecasting here or explore our collection of cash flow resources.
2. Overall sales, costs and profits
This might seem like an obvious metric for many, however many only look at their sales, costs and profits on a yearly basis. Your annual profit and loss statement is hugely significant, but for a deeper, more thoughtful analysis, you’ll need to explore these elements by week, month, department and even by product.
This will give you a much more well-rounded picture of your overall financial performance.
3. Sales by region / department / customer
An even greater breakdown will provide you insights into your business that will feed into other departments, like marketing and operations. Perhaps some of your regions are performing better than others? Why is this? Is there a way you can bring everyone up to speed, or is this due to external factors in the region? Can an increased budget in marketing and sales, specific on these regions, help performance?
Exploring and analysing your sales breakdown can be incredibly beneficial for allocating budgets, increasing efficiencies and improving performance across the board.
4. Profit per product / service
Which of your products and services are the most profitable – and more importantly, why? These insights, similar to a breakdown of sales, will feed into your business decision making in future, particularly in areas such as marketing and development.
Perhaps some of your products need greater development and improvement? Or potentially your marketing efforts are slightly unaligned, and your targeting could be enhanced.
Whatever it might be, this financial information will have a significant impact on the future of your business.
5. Debtor days
‘Debtor days’ is the average number of days that pass between selling a product or service, and getting paid for it.
The larger the number, the worse for your cash flow – and therefore the less stable the overall financial health of your business. Keeping track of your debtor days will enable you to work out how to reduce it, and you can breathe easier about those monthly overheads, bills, and staff payments.
6. Creditor days
This is the average amount of time you’re taking to pay your suppliers. A slightly longer period might feel more comfortable financially – but beware of damaging relationships by regularly paying late.
Collecting this data is hugely beneficial for understanding supplier relationships, reducing overall costs and also managing your cash flow.
7. Gross Profit Ratio
Gross profit ratio is your gross profit divided by your total net sales revenue. The ratio indicates the percentage of each pound of revenue that the company retains as gross profit.
It’s a useful profitability metric to have in your arsenal – especially if you can compare it against performance in previous years, or even other competitors in your market.
8. Net profit ratio
The net profit margin, sometimes shown as a percentage, is the ratio of net profits
to revenues. It shows you what proportion of each pound you make translates to profit.
This is an important metric to keep an eye on, because even if your sales revenue increases, the same won’t necessarily happen to your profitability.
When it comes to choosing which financial management information to collect and analyse, as we explored earlier, it is business-dependent and what is useful for some might not be suitable for you. However, the above 8 metrics are a good place to start and will lay the foundation for you tracking useful information for years to come.
If you’re looking to make data-driven business decisions, but you’re not sure where to start, The Finance People can help.