A balancing act
The information provided by the scorecard makes it possible to focus and align management teams, business units, resources and processes with the company´s strategies.
A balanced scorecard is a tool that facilitates management decision-making. It includes a coherent set of KPIs (Key Performance Indicators) that provide managers and area managers with an overview of the business or their respective areas of responsibility.
In case you do not currently have one. We suggest that now is the time to prepare one to help your team focus your company´s efforts in the same direction.
Measuring financial performance
As the name suggests, KPIs or Key Performance Indicators are just that, a group of metrics used to assess the overall performance of a company. KPIs aid in determining a company’s strategic, financial, and operational accomplishments, predominantly in comparison with those of rival firms in the same industry.
Record keeping, processing, cleansing, and summarizing are the foundation of KPIs. The data might pertain to any division across the whole organization and could be either financial or not in nature. A KPIs’ objective is to clearly convey outcomes so that executives may make better knowledgeable decisions.
Revenue and profit margins are often the main focus of key performance indicators linked to the financials. The most reliable of all revenue metrics, net earnings, measures the amount of income that is left over as profit for a specific period after taking into account all of the company’s costs, taxes, and interest payments for that particular term. Some examples are of financial KPIs are: Liquidity, profitability, solvency and turnover ratios.
Ask yourself if your company has identified its KPIs and how often are analyses carried out.
Create a corporate yearly budget and monthly and quarterly closings. It would be advisable to mention that you maintain a monthly account audit. Estimate potential budgetary deviations and consider the reasons behind them.
If the business is in debt, you must characterize that debt as owing money to banks and other financial organizations (leasing, bondholders, invoice discounting…). Debts with partners and debts with clients differ from one another. In general, advances are seen as debt. To make it obvious how the debt will be repaid when the time comes, you must formalize the debt through loan contracts.
Evaluate the properties that are impacted by business operations. It is common knowledge that businesses control the land on which their offices are located. It occasionally even owns assets that are not required for business operations. Separating real estate activity from productive activity is necessary, and the corporation will be charged market rent.
How is the maintenance of the company’s surplus management done? A cautious style of management is typical, in which the gains from prior years have stuffed the treasury rather than being dispersed. It is essential to do a thorough analysis of the working capital, often known as the actual cash requirements for the functioning of the business. The amount that can be distributed to the partners prior to the transaction must also be made explicit.
When it comes to treasury, cash pressures are often a sign that something isn’t functioning properly. Bank loans can ease tensions, but it’s important to identify and address the root of the issue before using them. This may be accomplished in a number of ways, including by studying the cash flow (or cash flow). Manage your box by, if feasible, billing your consumers in advance to create a positive cash flow cycle.
The information in this article will help you avoid the errors that are commonly made by unadvised business owners. Likewise, we’ve identified errors during the whole preparation, negotiation and closing phases of the sale. We have condensed those errors in our free three-e-book series “Errors during the sale of a company”.