Your company’s finances are an important aspect of how your business performs. After all, if you’re squandering your profits on expansions into territories where you haven’t done enough market research, or are blowing a lot of the company’s income that should be held for contingencies on big parties to celebrate the sale, you can quickly squander any progress that you’ve made. Beyond the philosophical approaches to managing your finances better, what other tools can help you get ahead?
The simple answer is that there are a countless number of tools to consider if you want to improve your handling of the company’s finances. From solutions for tracking and measuring your company data, to alternative investing platforms, there are plenty of options out there for if you want to get your finances on track. Here are just a few to keep in mind as you do your research.
Use advanced analytics to understand where you’ve been—and where you’re going.
Having the full picture of how your business is performing financially is incredibly important, if you want to sustain your success. At the same time, if you don’t have a good way of anticipating how your company will do in the future, you’ll have a hard time building upon those successes. Thankfully, data, and more specifically, advanced analytics, can help you process and better understand these sorts of questions.
Advanced analytics use a variety of analytics tools like historical data, forecasting, and machine learning to help you identify and predict trends in your company. This predictive model can be crucial in managing your finances better, as you’ll be able to have a clearer picture of how certain products or services are going to do each quarter. Rather than relying on anecdotal evidence or your gut, it’s far better to leverage data and base your financial decisions on legitimate business metrics. Predictive analytics lets you do that quickly and efficiently, allowing you to bolster your company with ease.
Consider investing a portion of your profits.
As you make money, it’s a good idea to save some of it for various contingencies that may arise. That’s a lesson that has taken on extra resonance in the middle of the coronavirus pandemic. Even so, there are ways to maximize your profits even more if you’re willing to invest an additional percentage into the markets, or in alternative investment vehicles.
Alternative investments may actually be more suitable for your business than traditional stocks in the first place, since alternative asset classes could ultimately be more lucrative in the short term. For example, you may decide to take a portion of your profits and purchase a multi-family home that you can rent out. This will give you an additional income stream in the short term, and, in five years if the home’s appreciated, you can sell the house for an even larger profit. Using a strategy like this helps you save the money that your business earns at a more aggressive rate, while letting it appreciate and earn you more revenue, too.
Understand what investors will be looking for when they come knocking.
As your business grows and performs well, you may be approached by investors who are interested in helping you reach new heights. These sorts of financial infusions can be critical in growing your business, and so it’s crucial that you represent your company and its finances accurately when speaking with investors. One factor that they may want to know about is your TIE ratio, also known as a times interest earned ratio. If you’re wondering to yourself, “What is a good times interest earned ratio?” it may be worth brushing up on your finances and business lingo ahead of your meeting. In short, a TIE Ratio is a measure of a company’s ability to pay off its debts, and it’s reliability over the long term. By taking the company’s earnings before interest and taxes (otherwise known as a company’s EBIT) and dividing it by it’s interest expense, you should get a number that defines how many times over a company can completely pay off it’s debts. The higher the number is in the single digits, the better the TIE ratio, since it means that you have enough cash on hand to cover your business debts. Analysts and investors will often use a TIE ratio to ensure that they are making a good decision on investing in your company, so it is a good idea to keep discipline in your business performance on a long-term basis, and scrutinize every new loan and additional debt.