Having accurate and up-to-date financial data can be a game changer for any business. Whether you’re a small start-up or an established company, having reliable financial information is essential to making effective decisions that can lead to growth and success. By staying on top of your financial data, you can gain valuable insights into your spending, profitability, and cash flow. With the right data in hand, you’ll have the power to optimize operations and maximize profits.
Your Business’s Financial Data Is Needed to File Taxes Correctly
You can’t file taxes without accurate financial data. And today, obtaining and organizing that data is becoming more complex. Your employees are a mix of traditional W-2 hires and independent contractors, all of whom could be working for you from anywhere in the world. Your revenue streams are diverse, and at least a few of them are through online and third-party channels.
And your business ventures are likely targeted to segmented audiences all over the country and the globe. Without a good understanding of your financial data, you can’t accurately report your taxes or the tax information your associates, clients, and vendors need to stay compliant with the tax code.
But financial data is so much more than just gross revenue, tax liability, and payroll. Let’s go through some of the key functions and benefits of a strong financial data strategy.
Keep an Eye on Trends
Every business has to carve out its own niche in the industry they are trying to be a part of. And a big way to do that is to keep an eye on trends to determine what products, services, and current events are influencing the consumer market that the business is catering to.
There are very few businesses and industries that don’t have either a busy season or an off-season. In many cases, they have both. And because of that, following industry trends becomes even more important.
There are also so many financial and economic trends right now that are crushing or bolstering entire industries. For example, in the last year or so, home prices and availability for those looking to buy houses have skyrocketed. Whereas in 2020, interest rates were at an all-time low, and now they are climbing quickly. All these factors will influence more than just the real estate market.
If you can create a good strategy for analyzing industry and consumer trends using your financial data and the financial reports of other businesses in your industry, you can create better strategies to weather the highs and lows of the coming years.
Financial Data Can Help Gauge Business Health
The financial health of your business can be mostly mapped by three financial statements: income statement, cash flow statement, and balance sheet.
Your income (profit and loss) statement shows the sum of everything you’ve earned and spent for your business over a set period of time. The cash flow statement is, in short, a way to gauge whether your business is able to pay its bills. And your balance sheet includes all assets, liabilities, and equity your business possesses in its current state.
It’s important to analyze financial statements data regularly and note any large peaks or valleys in the numbers. If COVID taught businesses anything, it’s that the old adage “failing to plan is planning to fail” is almost painfully accurate.
The 80/20 rule is a good guide for measuring whether your client profitability is up to par. 20% of your clients should be bringing in about 80% of your revenue – this means that 20% of your time is helping you create the majority of your revenue.
Only proper financial data management will show you if your client profitability is within a sustainable range.
But what happens if it isn’t sustainable, you ask?
Then it might be time for a closer look at your operations. How are you accruing clients? Can you create new avenues for finding customers that aren’t labor- or money-intensive? Are you catering to an audience that doesn’t understand your offerings?
The closer you pay attention to your financials, the easier it often is to find trouble spots in your processes. Money isn’t everything for your business, but it can quite often show you where your efforts aren’t producing the desired results, which can help you pivot quicker and find better ways to reach the customers that need your products and services the most.
The Goal: Accurate and Organized Data
Financial data is the backbone that supports the success of your business. While you may have started your company to provide an essential service or to bring joy to the world, you can’t do any of that if you go bankrupt.
Keeping a close eye on your financial data can help you create a strategy for your business no matter what situation arises. Whether it’s a rebrand, a global pandemic, or a new and exciting expansion opportunity, financial data is what can inform your decisions and create momentum for your business year after year.
Looking for a way to organize your information returns and the financial data within them? Sign up for a free eFile360 account today.