20 Ways to Improve Your Business’s Financial Performance (2024)

How’s your business doing? A commonplace question, perhaps, but customers,suppliers, creditors, investors and management all have a vested interest in the answer.Even so, it’s not easy to capture a company’s precise state of current financialhealth, much less understand how to improve it. Part of this is because financialperformance is largely subjective. Although financial reports and key performance indicators(KPIs) are themselves objective measurements, there’s no single report or metric thatsums up a company’s financial strength at any given moment. Moreover, there arecountless different levers a business can push to boost the status of its financialperformance.

How to Improve Financial Performance of a Company

A common mantra when considering how to improve business financial performance is: “Youcan’t manage what you don’t measure.” Yet no single ratio or metric isadequate for measuring financial performance on its own. Common indicators used to assessfinancial health include the business’s profitability, liquidity, cash flow,debt-to-equity ratio and return on assets — not to mention the data provided by financial statements,balance sheets and various KPIs.

But none of these indicators should be viewed in isolation. Only when used in aggregate— and compared with both historical data and industry benchmarks — can abusiness start to reach a comprehensive understanding of its financial performance.

And just as there are many ways to track financial performance, there are many ways toimprove it. The first step is to identify points of friction: Is the company bleeding cash?Have you taken on too much debt? Are customers dwindling? Do financial management strategiesneed maintenance? Recognizing problems will reveal the next step, whether it’s cuttingsupply costs, improving accounts receivable collections, boosting revenue with a newmarketing campaign or even working with a financial professional.

Before taking any action, get a measurement of current financial performance. This baselineis key to assessing whether future efforts to improve financial performance are paying off.Then, collect data during and after any actions are taken. Generally, the goal is to make atleast one ratio, financial statement orKPI show positive movement over time — more revenue, a greater profit margin or alower debt-to-cash ratio, for instance. But remember that financial performance can’tbe assessed in a vacuum, and some metrics can decline even as others improve. For example,revenue can increase even as cash reserves decline, perhaps because expenses are increasingwith growth. That’s why financial performance indicators must be assessed inaggregate.

Key Takeaways

• There are numerous ways a company can improve its financial performance.
• Cutting costs, managing debt, boosting revenue, obtaining external funding or consultingwith financial professionals are all actions that can benefit financial health.
• Measure financial performance before taking action to improve. Continue to trackfinancial ratios, metrics and KPIs to ensure that your efforts are paying off.
• The right accounting software can minimize time spent running manual calculations byautomatically tracking KPIs and other key financial metrics.

20 Ways to Improve a Company’s Financial Performance

Here are 20 possible ways to improve your business’s financial strength and stability— plus trackable metrics, where relevant. Remember: KPIs and other metrics should beconsidered alongside financial reports and statements to get the most comprehensiveunderstanding of the business’s financial health. Be sure to take before and aftersnapshots of relevant metrics to gauge success.

1. Clarify your business plan.

A business plan forms the basis of any company. It describes the company, establishes itsgoals and lays out the intended means for reaching those goals. A strong business plan canguide a company toward success, help it secure funding and even attract employees —particularly, management or executive staff. Though writing a business plan is generally oneof the first steps to starting a company, it’s not a document you can set and forget.Instead, aim to review the business plan at least yearly. Clarify overall business goals,what big-picture success looks like (using quantitative measures whenever possible), howeach functional team will contribute to those goals and what metrics will be used to holdeach team accountable.

For example, if competitors have begun to reduce prices to get more business, it might betime to revise your business plan’s marketing strategies in order to mitigate revenueloss. Marketing teams could then be responsible for boosting efforts to attract customers.But for those efforts to be successful, they’ll also need to make sure theproject’s ROI doesn’t cut away at profits, even if it increases revenue;meanwhile, it doesn’t hurt to have the sales team track customer retention to makesure brand loyalty isn’t fading.

Integrated businessplanning, or IBP, can be a useful way to adopt this type of detailed and unifiedapproach to improving financial performance. It’s a way to clarify your business planand align goals with the company’s finance, product development, marketing, supplychain and other key operational teams. Successfully adopting IBP requires substantialcultural change, in that the organization must shift toward tight collaboration and trustamong traditionally siloed teams. But if implemented correctly, benefits are vast: Closecollaboration leads to improved decision-making, improved responsiveness, greaterforecasting accuracy and, above all, increased revenue.

2. Know your day-to-day costs.

When it comes to running a business, it’s key to know how much money is spent onday-to-day operations, aka operating expenses. Alsoreferred to as OPEX, operating expenses include fixed costs, such as rent, staff salariesand property taxes, and variable costs, such as utilities and sales commissions. OPEXexcludes the direct costs attributed to processes involved in manufacturing a product ordelivering services, known as cost of goods sold (COGS).COGS encompasses the cost of purchasing raw materials, as well as manufacturing activities,including labor.

OPEX typically makes up most of a business’s overall expenses, but it’s importantto keep it as low as possible without negatively impacting either the quality of goods orservices or customer or employee experiences. That’s because if operating expendituresincrease without a corresponding increase in revenue, profitability decreases.

Knowing exactly where money is going will help reveal places to cut costs or prioritizespending. For example, knowing that a large proportion of daily operating expenses goes toenergy bills reveals an opportunity to maximize energy efficiency.

Although daily OPEX can be tracked and calculated manually or through spreadsheets,accounting software makes it much easier to capture operating expenses and track relatedmetrics, such as gross burn rate and average daily expenditures.

Gross burn rate measures how quickly available cash is spent on operating expenses. Thehigher the burn rate, the faster the company will run out of cash — unless it boostsrevenue or receives additional financing or funding.

Gross burn rate = Companycash / Monthly operating expenses

Average daily expenditures measures the average amount of money spent on a daily basis.Here’s one way to calculate daily costs:

Average daily expenditures= (Annual COGS + Annual operatingexpenses) / 365 days

3. Improve accounts receivable collection.

It’s one thing to have great sales on paper. It’s another to actually have cashin hand. Even if payment instructions are crystal clear, it’s almost inevitable thatsome customers will not comply. Missed or late payments can take a toll, gumming up cashflow and ultimately making it harder to secure financing. Two KPIs that can help a companytrack its accounts receivable processes are days salesoutstanding (DSO) and accounts receivable turnover. Both are good benchmarks totrack for any company looking to improve financial performance.

DSO tracks the average number of days it takes to receive payment for sales purchased oncredit. High or rising DSO signals a need to check in with customers or improve accountsreceivable collections.

DSO = (Average accountsreceivable for a period / Credit sales made forperiod) x number of days in period

Accounts receivable turnover is a ratio that reveals how efficiently your company collectsdebts. The lower the ratio, the longer it takes customers to pay. This could mean paymentterms are too flexible.

Accounts receivable turnover= Net credit sales / Averageaccounts receivable

If KPIs, like DSO and accounts receivable turnover, aren’t ideal, the following tipscould help your business recover outstanding debt — and simultaneously prevent futureshortfalls:

• Make it easier to pay. The more ways a customer can pay, the morelikely they are to pay sooner. Offer multiple payment options, such as check, e-check,credit card and debit card.
• Clearly communicate payment terms. Give customers terms and conditionsup front, including how much time they have to pay (net 30 or net 45, for example). Beclear about penalties or fees that will be applied to late payments.
• Invoice quickly and accurately. Invoice immediately after a sale, stateterms clearly on invoices and follow up if they’re not paid on time. Send repeatmessages at strategic intervals that politely remind customers that their payment ispast due. Make sure invoices don’t contain errors that could delay payment, suchas incorrect amounts or missing purchase order information.
• Offer early-pay discounts. Early-pay discounts can be a win-win forcompanies and their customers. The company gets paid sooner, which boosts cash flow, andthe customer gets a discount. Plus, any dollar amount given up in discounts willgenerally be smaller than the costs of uncollected invoices.
• Use automation. Accounts receivable software can automate manualprocesses, making it easier to send accurate invoices faster. Payment reminders can alsobe sent automatically.

4. Seek professional advice (financial adviser).

Business owners tend to wear many hats. They often must make personnel decisions, decide uponcapital allocations, strategize how to grow sales, identify where to cut costs andconstantly respond to emergencies. For this reason, it can be especially beneficial toconsult a financial adviser when trying to improve financial performance. Theseprofessionals have the tools, resources and knowledge to help companies budget, manageinvestments, create long-term financial goals and even manage taxes.

A great way to find a financial adviser is through personal referrals. Ask other businessowners whom they use and whether they are satisfied with the results. Another option is toapproach the local chamber of commerce or one of following organizations — some ofwhich will provide peer assistance pro bono:

• Service Corps of Retired Executives (SCORE)
• Financial Planning Association (FPA)
• Foundation for Financial Planning (FFP)
• The National Association of Personal Financial Advisers (NAPFA)
• The Association for Financial Counseling & Planning Education (AFCPE)

When searching for an adviser, note that they should be:

• A fiduciary who is required by law to always put their clients’ best interestsbefore their own.
• Compensated with fees, not commissions.
• Prepared to tell you how much time, as well as money, they can save or help generate.
• Adept at adopting advancing technology as it becomes available.
• An expert in the specific area of finance your business needs help with.
• Able to provide references from other clients.

5. Reduce expenses.

One straightforward way to improve financial performance is to cut costs. If costs declinewhile incoming revenue remains the same, profitability increases.

First, identify potential places of waste or inefficiency. Four main areas to look at includepeople, energy, transportation and travel. But it’s worth scouring every part of thebusiness. Scrutinize the costs of office supplies, advertising, rent, utilities, insurance,loan terms and credit card fees. Don’t forget to look at business processes, too: Ifyour staff spends more time troubleshooting faulty equipment than producing products, forexample, valuable time is being wasted.

Next, begin cutting costs where possible, in controlled environments. There may be severalareas worth addressing, but try not to target everything at once. Businesses, in many ways,are delicate machines. If you tinker with one area — say, by cutting advertising costs— be sure to keep an eye on other areas, like new customer acquisitions. Additionally,don’t overlook automation technology’s ability to help boost financialperformance. Especially in the cloud era, businesses can get up and running with apps thatcause worker productivity to soar by eliminating repetitive, manual tasks and consolidatingcurrently disparate systems to avoid the time — and mistakes — often generatedby manual data entry and analysis.

Be sure to track metrics before and after taking any action. Profitability ratios, such asnet profit margin, can clue you into how expenses are affecting the financial health of thecompany. If net profit margin starts falling, it might be a sign to try to reduce COGS, forexample — maybe by finding a more affordable supplier, buying in bulk or evenautomating parts of the job. As always, net profit margin shouldn’t be assessed inisolation. Instead, look at it alongside other relevant metrics, such as return oninvestment or cash flow.

6. Sell business assets.

Assets are resources a business owns or leases that can be used to create value in thefuture. For example, if mobile apps are a business’s primary source of revenue, thephones, laptops, tablets or other types of computers used for programming would be key business assets. Tangible assets, such asinventory and machinery, have a physical presence — their value is easily measurable.Intangible assets, such as patents, trademarks and copyrights, lack a physical component andcan be harder to measure.

Many businesses possess tangible assets that they aren’t using or aren’t using tothe fullest extent. Selling these assets can be a good way to generate cash and free upfunds for tactical or strategic investments that will help the core business.

Assets are recorded on the company balance sheet. Clear and accurate records of assets acrosstheir entire life cycles can make it easier to know at a glance the financial position andnet worth of each asset and to analyze which assets are performing and which are generatingless value. Once that data is provided by the balance sheet, several KPIs can be used todetermine how well assets are performing. Here are a few:

Working capital measures whether a business has sufficient current assets to meet short-termfinancial obligations. Though a higher number is generally better, working capitalthat’s too high may indicate that assets aren’t being leveraged as well as theycould be or that surplus cash isn’t being invested wisely.

Working capital = Currentassets – Current liabilities

Fixed assets turnover measures efficiency, or how well assets are used to generate sales. Ahigher ratio is good and indicates effective utilization of fixed assets. A lower ratio saysthe reverse.

Fixed assets turnover =Net sales / Average fixed assets

Return on assets measures the efficacy of a company’s management to generate profitsfrom its assets. The higher the return, the better.

Return on assets = Netincome / Total assets for period

If the business has assets that aren’t generating sufficient value — maybe theproduction facility is storing unused equipment — it might be time to research thevalue of the assets in question to see if they’re worth selling: What is the currentmarket value of the asset? How much would it realistically bring in if sold today? Anasset’s value can fluctuate significantly over time, so make sure the analysisconsiders current demand, prices and any upcoming trends that could affect its value.Consider the costs of selling, such as tax implications and advertising expenses, as thesewill chip into the return.

Once assets are sold, compare KPIs from before the sale and after the sale to see how muchselling those assets improved financial performance.

7. Increase prices.

Any company that’s in business for any length of time will eventually need to raiseprices — whether due to rising costs, inflation, a brand overhaul or value added togoods or services. Whatever the catalyst, raising prices is a delicate matter with long-termimplications. A business needs to purposefully decide whether to raise prices, how to do it,how much more to charge and how to communicate that increase to customers without alienatingthem.

One way to get a sense of whether prices should increase is by tracking gross margin, or thepercentage of revenue a business keeps after deducting the cost of goods sold. The higherthe percentage, the more profitable each sale. If the company’s gross margin is lowerthan desired, and cost of goods sold is already as low as possible, it might be time toraise prices.

Gross margin = [(Totalrevenue – COGS) / Total revenue] / 100

Customer acquisition cost (CAC) is another KPI that can influence a company’s pricingstrategy. If the cost of acquiring new customers is higher than desired, the business mightneed to either find ways to lower CAC or set a higher price point to cover the cost of thatacquisition. Doing so can help ensure that the business remains profitable in the long term.

Customer acquisition cost= Total sales and marketing cost /Number of new customers

If it’s time to raise prices, it’s a good idea to first check out whatcompetitors are charging. Analyze the value being provided from the low end to the high endof the spectrum of the offerings in the market. Decide where your brand best fits in and howit stands out against competitors. How can you capitalize on that differentiation as areason to raise prices?

Avoid raising prices until after the change has been announced and justified. No customerwelcomes sticker shock; it’s generally better to communicate with utter transparency.Perhaps view this as an opportunity to emotionally reconnect with customers. After all,emotion drives purchase behavior even more than price, research shows. Not sure how toannounce your price increase? Give it prominent placement on your website, post it on socialmedia or consider sending a personalized email.

8. Offer markdowns to move surplus stock.

Even if you track all the right KPIs, demand planning can be asmuch art as it is science. Unforeseen events could shift the market or economy, leading tooverstock at the end of a selling season. Don’t consider this a failure. Mostretailers and manufacturers would rather have a small inventory left over than run short, asthe latter would potentially mean lost sales. To effectively manage surplus stock, considerimplementing strategies such as determining appropriate discount levels and leveragingvarious sales channels. Additionally, timing plays a crucial role in offering markdowns, andmarket research, customer behavior analysis, and market trend monitoring can help identifythe optimal time to maximize demand

That’s why markdowns are inevitable. A markdown is a permanent price decrease for aproduct at the end of its life cycle. It’s used to boost demand and ideally sell offall remaining stock. Markdowns can occur at any stage of the manufacturing process, from rawmaterials to finished goods. In many cases, you won’t be able to recover all yourcosts. But at least you can limit carrying costs and stop theinevitable decline in value of aging inventory — all of which can negatively affect abusiness’s financial performance. Here’s a simple way to calculate inventorycarrying costs:

Inventory carrying costs= (Cost of storage / Total annualinventory value) x 100

ABC inventoryanalysis can also be a useful way to determine which products will benefit most frommarkdowns. It helps determine the value of inventory items, based on their importance to thebusiness. ABC groups items according to demand, cost and risk data. This helps businessleaders understand which products or services are most critical to the financial success oftheir organization. The most important stock keeping units (SKUs), based on either salesvolume or profitability, are “Class A” items. Class A items are typically the20% of goods that deliver 80% of the value. The next most important goods are “ClassB,” which are less valuable. The least important are “Class C,” which makeup the greatest percentage of inventory and deliver the least value.

Conduct ABC inventory analysis by finding the annual usage value per product. To do so,multiply the annual sales of a certain item by its cost. The results reveal which goods aremost valuable and which yield the lowest profit, so you know where to focus human andcapital resources — and where to offer markdowns.

Annual usage value per product= (Annual number of items sold) x(Cost per item)

When you have an idea of what products to markdown, make sure any resulting price drops:

• Are part of a holistic pricing strategy for each product across its entire life cycle.
• Will help clear out end-of-life inventory while maximizing gross margin.
• Take into account nuanced factors that can affect product demand, such as seasonaltrends, economic traditions, sociocultural trends and competition.

It may also help to start with a small markdown and gradually increase the discount if theproduct still doesn’t sell.

9. Offer multiple payment options.

Cash might be king, but many consumers and businesses prefer card payments or directdeposits. Ultimately, the types of payment you accept may depend on your specific customerbase and your business requirements. A smaller local business may be able to get away withaccepting only cash or check, whereas a major ecommerce retailer will likely need to acceptcredit cards, debit cards and maybe even a partnership with a buy now, pay later provider.In any case, it’s important to ensure an easy, seamless checkout or invoicingexperience for customers.

B2B companies might want to track a KPI, like day sales outstanding, to get a sense ofwhether customers could be paying sooner (see “3. Improve accounts receivablecollection,” above). For B2C companies, tracking the cart abandonment rate mightreveal that customers are failing to complete apurchase when it’s time to enter payment information, signaling a need formore payment options. Remember: Carts can also be abandoned for different reasons, such ashigh taxes or fees or slow shipping times, so it’s important to track exactly whenshoppers are clicking away.

Cart abandonment rate = 1– (Completed purchases / Number of carts abandoned before checkout)x 100

In general, the more flexible a business can be about accepting different kinds of payments,the more likely a B2B customer will be able to make on-time payments and the less likely aB2C customer will be to abandon their cart. The faster more sales can be made, the greaterthe cash flow benefits — and the greater the chances of improving financialperformance.

Many technology platforms help businesses accept a variety of payment methods, from e-checksto credit cards. In addition to considering what’s practical for your business, keepthe following in mind when deciding which payment options to offer:

• Price: What is the pricing structure, especially the per-transactionfee? This is a key consideration since fees can erode profit margins, but not acceptingcredit cards can dramatically limit clientele.
• Features: What other capabilities does the vendor offer, other thanfacilitating payments? Do they offer chargeback protection or analytics services, forinstance?
• Flexibility: Can customers choose how to pay? Are credit cards, debitcards, digital wallets and bank transfers all accepted?
• Connectivity: Does the solution integrate with your other financialmanagement software?
• Security: What kind of security does the platform have? Is there anyfraud protection?

10. Consolidate your business debt.

Debt consolidation rolls up outstanding loans, credit card balances and other debts into asingle loan with a single monthly payment. In addition to simplifying monthly payments, debtconsolidation could also provide lower interest rates, reduced payments, shorter repaymentperiods or all three. Any of these benefits could help a company manage its finances —especially if the company’s cash flow-to-debt ratio is low.

Cash flow-to-debt ratio measures how much debt a company could repay with its operating cashflow, or total revenue minus operating expenses.

Cash flow-to-debt ratio =Operating cash flow / Debt

If a company’s cash flow-to-debt ratio is 0.5, for example, this means the company isearning $0.50 for every dollar of debt it can repay. In other words, the company owes morein debt than it’s taking in. Though factors like revenue and operating expenses alsoinfluence cash flow-to-debt ratio, if a business can lower monthly debt payments or interestrates through consolidation, it may improve its ratio — benefiting financialperformance. Other financial KPIs, suchas current ratio, working capital and the quick ratio, can also help a company gain anunderstanding of its ability to cover debt.

Debt consolidation loans are available from several different sources, including banks,credit unions, the Small Business Administration (SBA) and alternative peer-to-peer lendingcompanies.

11. Increase marketing efforts.

Marketing helps increase brand awareness, which, in turn, attracts customers and drivessales. Without effective marketing, businesses would struggle to compete. Businesses lookingto improve financial performance might consider boosting or rethinking their marketingefforts — particularly if site traffic seems to be waning or if KPIs like return onmarketing investment (ROMI) are lower than desired.

Site traffic measures how many visitors your website gets over a period of time. More visitsusually lead to more sales. Companies can get fairly granular in how they measure sitetraffic. For example, tracking traffic by source (how visitors found your website) can helpensure that you’re making the right marketing investments. Say a business is failingto get organic clicks months after starting a new search engine optimization(SEO) marketing strategy. Something probably needs to change. Maybe the site isoptimized for desktop, but their target audience primarily searches on mobile. Transitioningto a mobile-friendly layout is key, as Google primarily uses the mobile version of a sitewhen indexing and ranking. That simple change could be enough to boost marketingperformance, get more clicks, more sales and, ultimately, more revenue.

ROMI compares the cost of marketing to how much revenue and profit it generates. Since it cantake weeks or months to convert a lead into a customer — especially in the B2B space— it’s best to track ROMI over time. Tracking this KPI can help demonstratemarketing’s contribution to the bottom line, justify marketing spend and determine howfuture budgets should be allocated.

Return on marketing investment= (Net return on marketing investment / Cost) x 100

If ROMI is low, make sure you clarify your target audience: What are their needs? Do youunderstand their demographics — location, age, gender and interests? The more youknow, the easier it will be to create marketing messages that resonate. It can help toconduct market research, with surveys or focus groups, or by analyzing the competitivelandscape of your particular market. Then, identify the features and benefits unique to yourcompany. This is your value proposition. Find creative ways to accentuate those differencesand initiate contact with customers via email, webinars, podcasts, social media content oreven television, radio and digital advertising.

Whatever route the business goes, track related marketing KPIs. For example,marketing qualified leads (MQLs) can be used to assess how many leads are coming in from anew marketing effort, be it an email, social media or SEO campaign. Coupled with conversionrate — or how many of those visits lead to sales — a business can get a prettygood sense of how increased marketing efforts are affecting overall financial performance.

12. Apply for grants.

In business, a grant refers to a sum of money that is given by a government agency, nonprofitorganization or even a commercial entity to a business or individual, usually for a specificpurpose. Grants are often used to support research and development, to start up newbusinesses or for specific initiatives, such as those related to sustainability, populationequality and community development.

The cash infusion grants provide can be just what a business needs to help boost financialperformance, whether by improving cash flow or making it more affordable to invest in theequipment — or people — necessary to build the business. And, unlike loans,grant money does not have to be repaid.

But the grant scene is competitive and to successfully get awarded one takes attention andtime. Businesses typically won’t qualify for most of the grants they apply for, butunderstanding how specific grant-issuing organizations evaluate applicants can help increasethe chances of success. In addition:

• Look for grants within your industry.
• Read the eligibility requirements carefully.
• Make sure your business aligns with the grant organization’s mission.
• Know what you’ll be spending the grant money on.
• Focus your pitch accordingly.

Though grants are essentially “free money,” the recipient may be required to meetcertain conditions or report on the use of the funds; grant issuers usually have a missionand like to know their money is being put to good use. If you are approved for a grant, keepgood records and make sure funds are being used effectively. And though it might be temptingto spend grant money freely, it does help to track the return on any investments funded bygrants — as well as the cost effectiveness of any grant-funded projects — toensure that financial performance is truly improving.

13. Meet tax deadlines.

Businesses, like individuals, must file a tax return. Business structure, location and netincome, among other factors, determine which forms need to be filed, which taxes must bepaid and how much.

Failing to pay taxes on time can incur steep costs and inhibit financial performance. Forinstance, if a business doesn’t file on time, it may have to pay up to 5% of theunpaid taxes for each month or part of a month that the return is late (but the penaltywon’t exceed 25% of the business’s unpaid taxes). The IRS will also chargeinterest on underpaid taxes and penalties. Meeting tax filing and payment deadlines can,therefore, prevent unnecessary charges.

Additionally, meeting tax deadlines demonstrates compliance with laws and regulations, whichcan help a business maintain a good reputation and build trust with customers and partners.

Here’s a list of common business taxes to be aware of:

• Income tax: Except for partnerships, all businesses need to file anannual federal income tax return. (Partnerships file an information return and eachpartner reports taxes on their individual return.) The federal income tax is apay-as-you-go tax, meaning taxes must be paid as income is earned during the year.Employees usually have income tax withheld from paychecks; if not, it’s likelyestimated tax payments must be made. Most states also impose a business income tax.
• Estimated tax: Businesses generally must pay taxes on income byregularly making estimated tax payments throughout the year, usually quarterly. Anyincome that is not subject to withholding, such as income from self-employment, interestand dividends, must be paid this way.
• Self-employment tax: Self-employed business owners must payself-employment taxes to cover Social Security and Medicare taxes. These taxes must bepaid in addition to income taxes and are paid quarterly, as estimated taxes.
• Employment taxes: Businesses that have employees must withhold anddeposit federal and state income taxes from employee wages. Employment taxes includeSocial Security and Medicare taxes, federal income withholding taxes and the federalunemployment tax (FUTA). Due dates can differ; check with the IRS or a tax professional.
• Excise tax: These taxes must be paid if the business manufactures orsells certain products, is paid for certain services or uses certain types of equipment,facilities or other products. Excise taxes are typically imposed on the sale of thingsconsidered to be nonessential or harmful, such as fuel, tobacco, firearms and airlinetickets. Excise taxes are paid quarterly.

The IRS provides an online Tax Calendar to identify important tax deadlines and remindbusinesses when to pay. It can be customized to match your business structure, fiscal yearand other parameters. Note that tax deadlines may change if a business files tax returns fora fiscal year, instead of a calendar year.

14. Control overhead costs.

Every business has overhead costs. Overhead costs are not directly tied to the production orsale of a specific product or service but are necessary to keep the doors open and lightson. Carefully controlling overhead is one way to improve financial performance; assuming allelse is equal, the higher a company’s overhead, the lower its net profit margin.

Fixed costs are the same for every monthly, quarterly or annual payment. They include rent ormortgage payments, insurance, property taxes and administrative salaries. Variable overheadcosts, like utility bills, office supplies and equipment, change from payment to payment,and may not be paid on a fixed schedule. There are many ways to cut back on both fixed andvariable overhead costs. But first, it’s a good idea to calculate the business’soverhead rate. Here’s a simple formula:

Overhead rate = Overheadcosts / Sales

If a company has $50,000 in sales for June and overhead costs of $8,000, the overhead rate is16%. For every dollar brought in, the company spends $0.16 in overhead. A good overhead ratedepends on the business and industry, but it’s generally a good idea to keep overheadas low as possible. Too high a rate indicates the business is likely spending too much onoperations, which can limit the bottom line and eventually make it hard to stay solvent.

Common ways to control overhead include:

• Cutting utility costs by reducing energy consumption, such as by improving insulation orusing energy-efficient lighting.
• Outsourcing administrative or specialized tasks, such as payroll.
• Negotiating better payment terms or deals with suppliers.
• Lowering rent and payments by cutting back on office space, warehouse space, retailspace. This can also shave utility costs.
• Reducing labor costs by automating manual processes.

15. Monitor cash flow.

Cash flow refers to the volume of cash that is coming into and going out of a company.It’s a measure of a company’s liquidity and its ability to meet its financialobligations. Positive cash flow means that a company has more cash incoming than outgoing,while negative cash flow means the opposite. Businesses need to maintain positive cash flowto cover operating costs — raw materials, equipment, rent, payroll, supplies —and invest in future growth.

Monitoring cash flow is an essential aspect of improving business performance. Unfortunately,it’s possible to be profitable on paper and have negative cash flow, if you have alarge volume of accounts receivable or unpaid invoices for products sold or servicesperformed. If that happens, the business may struggle to pay its workers or coveroperational expenses — and have nothing left to invest in any growth opportunitiesthat arise.

The best way to monitor cash flow is to perform a cash flow analysis,ideally every month. There are three types of cash flow that should be analyzed, and eachappears on a cash flow statement:

• Cash flow from operating activities. This is cash from customers aftersubtracting operating expenses.
• Cash flow from investing activities. This is cash garnered or spentfrom the purchase and sale of investments and property, plant and equipment (PP&E)assets.
• Cash flow from financing activities. This is cash inflows from friends,family, investors or institutions, such as banks or credit unions.

By tracking the cash coming in through these categories — as well as cash flow metrics and KPIs, like working capitaland accounts receivable turnover — a business can see what money is coming in andwhere it’s going out. This info provides insight into the financial performance of thecompany and can help inform decisions about pursuing new marketing strategies and productlines, streamlining internal processes or finding ways to cut costs.

If cash flow is decreasing, take heed: Long-term negative cash flow can have seriousconsequences for a business’s solvency. To protect financial health, take action andget more cash into your business — by reducing expenses, increasing revenue, improvingaccounts receivable or even seeking financing.

16. Follow up on outstanding payments.

The terms “outstanding” and “overdue” are frequently used as synonymsto describe the state of an invoice. But the two words are not interchangeable. Anoutstanding invoice is an invoice that was sent out but has not yet been paid. An overdueinvoice is an invoice that has passed its due date and still has not been paid. In otherwords, all unpaid invoices are outstanding but not all are overdue.

So why would an outstanding invoice be a problem? A customer may still pay before the duedate, so why spend time and money chasing it? Two reasons:

• Get cash sooner. The sooner a business gets paid, the more liquidity ithas — and the more funds to cover payroll and daily operations, or even invest inthings that will drive future growth.
• Uncover potential customer problems early. When customers don’tpay promptly, it can mean they had a problem with the product or service, a disagreementabout price or some other simmering discontent that should be resolved ASAP. Touchingbase can reveal issues that would delay payment.

KPIs, like days sales outstanding and accounts receivable turnover, can help a company gaugeits billing and collection processes. If numbers are lower than desired or the business hasbeen finding itself cash poor, despite being profitable, it’s time to start followingup with customers. Here are a few tips:

• Invest in automated accounts receivable technology. Using a system thatautomatically invoices customers and reminds them of due dates limits the length of timeyour accounts receivable team needs to chase payments.
• Take a personal approach. A personal phone call or an informal emailcan help you understand why the customer hasn’t yet paid and when to expect thepayment, if ever. This can help reveal the severity of the situation. Try to resolve anydisagreements or misunderstandings on a friendly basis.
• Negotiate a payment plan. If a customer expects to make a late paymentfor a valid reason — perhaps their own cash flow is ebbing and flowing unevenly— it can help to establish a payment plan. This is a win-win for all: You get paidwhile salvaging the relationship. It also saves the cost and hassle of being forced toseek legal remedies.
• Hire a debt collection agency. This is a more drastic step and relevantonly with overdue invoices. When an account is transferred to an agency for collection,the total owed must be deeply discounted. Many such agencies will offer instant cashpayment on unpaid invoices, helping improve liquidity.
• Initiate legal action. Sometimes the courts are necessary, butit’s generally best to avoid this step because of the expense and hassle —and it’s relevant only for overdue invoices. Before taking legal action, send aformal letter of intent to let the customer know what’s looming if theydon’t pay up. This in itself can trigger favorable results.

17. Apply for business financing.

Businesses that are trying to grow or improve financial performance often feel constrained bya lack of cash. They can be successful, even profitable, but, for various reasons, lack theliquidity needed to reach the next stage. A cash infusion via business financing can improvefinancial performance enough to stimulate progress. Financing can help a business broadenoperations, expand to a larger facility, purchase inventory and equipment, hire additionalstaff or cover unexpected expenses. Financing can also be used to improve cash flow, investin marketing and advertising or simply take advantage of opportunities that arise.

Businesses have options when it comes to financing:

• SBA loans: These are government-backed loans designed to help smallbusinesses obtain financing.
• Bank loans: Small businesses can also obtain loans from banks, creditunions and other financial institutions. These loans can be secured with collateral orunsecured. There are also specialized forms of bank financing, like equipment financing,which can help businesses purchase costly equipment.
• Crowdfunding: This is a method of raising capital through smallcontributions from a large number of people, typically via the internet. There are anumber of crowdfunding platforms, each of which takes a percentage of the money raised.
• Angel investors and venture capital: Angel investors and venturecapital firms provide equity financing to small or new businesses in exchange for anownership stake in the company.
• Business credit cards: Some credit cards are specifically designed forsmall business use, facilitating cash advances that can be useful for businesses tryingto manage cash flow more effectively.
• Invoice financing and factoring: Invoice financingallows a business to borrow money against outstanding invoices. Invoice factoringallows them to “sell” accounts receivable to a third party, at a discount.

Although business financing can help improve financial performance, it also requires takingon debt — and debt comes with interest and other fees. And if a business relies tooheavily on debt to fund operations, the company’s financial health is more vulnerableto risks, such as economic downturns or spiking variable interest rates. The debt-to-equityratio is a commonly used financial ratio to determine if a business is taking on too muchdebt.

Debt-to-equity = Totalliabilities / Total shareholder equity

It depends on the industry, but a debt-to-equity ratio of 1 or less is generally consideredgood. A ratio of 2 or more could be a red flag that the business might have financialtrouble in the future. If a business is already relying on financing to fund operations, itmay not be a good idea to apply for more financing.

18. Expand your customer base.

Your “customer base” is the group of people that regularly purchases yourproducts or uses your services. They’re the lifeblood of the business and deliver themost long-term value.

When attempting to expand your customer base, keep in mind longer-term goals. You want repeatcustomers, not just one-offs or customers who divide their attention (and dollars) amongbrands. Extraordinary bargains, sales promotions and other attention-grabbing trickswon’t necessarily work to increase customer lifetimevalue, a key sales metric used to determine which customer segments generate themost revenue.

Customer lifetime value =(Average transaction size) x (Number oftransactions) x (Retention period)

When you know how much you’ll earn from the typical customer, you can get a sense ofhow much to spend on new customer acquisition. For example, you might be able to increasespending to reach more customers and maximize profitability, or the figures might reveal aneed to decrease customer acquisition costs. That said, comparing customer lifetime value tocustomer acquisition costs is key to homing in on a cost-effective strategy to expand yourcustomer base.

Customer acquisition costs= Total sales & marketing costs / New customers

There’s a caveat to working hard to acquire new customers: You must simultaneously makesure to keep your existing customer base happy, as it costs more to acquire a new customerthan it does to sell to an existing one. If churn rates start going up, it may be a signthat once-loyal customers are feeling neglected.

Customer churn = Numberof customers lost in a period / (Number ofcustomers at start of period + Number ofcustomers at end of period)

With minimizing churn in mind, the cost of building your customer base will vary, based onyour industry and sales strategy. Some associated costs include:

• Marketing and advertising expenses, such as online advertisem*nts, social mediacampaigns or print ads.
• Sales team commissions.
• Trade show or other event expenses.
• Lead-generation costs, such as paying for a list of potential leads.
• Development costs to modify a product or service to meet the needs of a new (or newcategory of) customer.

One low-cost, but effective, way to improve your customer base is to make existing customersadvocate for you through word-of-mouth marketing. Customer advocates write reviews, makereferrals or allow their testimonials to be published on your website or in promotionalmaterials. Customer advocates can dramatically improve a business’s reach andcredibility. According to one survey, more than three-fourths of people (77%)“always” or “regularly” read reviews when searching for orevaluating a local business. And 89% say they would be “fairly” or“highly” likely to patronize a business that personally answers reviews, whetherthose reviews are positive or negative.

19. Consider external investment.

Not every company can grow organically throughout every stage of its business developmentjourney. But finding external investors can help give a business the financial push itneeds. And even if a business doesn’t need extra funding, per se, investors can bringmore to the table than just capital. They can also provide the expertise and connections abusiness might need to innovate and grow beyond its current state. They may help withdecision-making and strategic planning. Some investors may even be willing to help withhands-on management and operations. Done well, a round of investment funding can boost abusiness’s financial performance enough for it to reach the next level.

There are several sources of investment to consider, such as:

• Family and friends.
• Angel investors.
• Venture capitalists.
• Private equity firms.
• The public.

The ideal time to bring outside money into your business varies considerably from company tocompany. A young company still in its “seed” stage — meaning, it has asolid idea but might not yet have a product or be pulling in revenue — might look tofamily, friends or even angel investors as a source of external investment. Companies thatalready have a product in the works might be able to turn to venture capitalists, whogenerally tend to be a bit less adventurous than angel investors. Companies ready to expand,with a few years of solid footing under their belt, might look to go public by making an initial public offering(IPO). Or, if the company wants to scale up but stay private, they might look to aprivate equity firm.

Whatever type of investment a company seeks, it’s very important for the business ownerto carefully consider the terms of any investment and the potential impact on the controland direction of their company. Capital is never free. In exchange for money, businessesalmost always must give up partial ownership, or equity. This can dramatically reduce yourinfluence on your own business. Private equity firms, for example, generally buy 100% of thecompany, whereas angel investors and venture capitalists might take 25% to 50% ownership,family and friends even less.

20. Upgrade your record-keeping with real-time data in NetSuite.

Because you can’t manage what you can’t measure, it’s essential to keepmeticulous financial records of all your business activities. And if the goal is to improvebusiness performance, it needs to be done in as close to real-time as possible — staledata leads to potentially misleading analysis and decision-making. Therefore, spreadsheetsand on-premises solutions are out. Cloud-based financial management automation is in.

NetSuite financial management solutions aredelivered via a cloud-based platform that offers real-time visibility into abusiness’s current financial performance, from a consolidated level down to individualtransactions. Say goodbye to inaccurate financial reporting and hello to precise pictures ofoverall financial performance.

Generate financial reports that comprehensively reveal how the business is performing andaccess up-to-the-minute financial statements that comply with GAAP, IFRS and otheraccounting standards. Guide decision-making with what-if scenarios that reveal the potentialand financial impact of any changes. Then, use personalized dashboards to drill down intounderlying details and track key metrics over time. In addition, NetSuite seamlesslyintegrates with other business applications — including order management, inventory,CRM and ecommerce software — so you can run your entire business with a singlesolution.

The financial performance of a company is best represented by numbers. But you generally needto look at several metrics and financial reports before you have a solid understanding of acompany’s financial soundness. If improving financial performance is the goal, commonactions to take fall into several categories: cutting costs, managing debt, boostingrevenue, looking to external sources and tightening financial management controls. Butremember: Any actions taken to improve financial performance must be tracked and analyzedover time to ensure that your efforts are working as you expect.

Improve Financial Performance FAQs

What is financial performance?

Financial performance refers to how well a company is doing financially. It’s typicallymeasured by analyzing financial statements, such as income statements, balance sheets andcash flow statements. Financial metrics and KPIs — such as revenue, net income, grossburn rate and return on assets, among many others — should also be assessed.

Why is financial performance important?

Financial performance is important because it allows a business to measure its success,identify areas for improvement, make informed decisions, attract investors or securefunding. Additionally, financial performance can also affect the business’s ability topay employees, suppliers and taxes, as well as its ability to expand or grow in the future.

What are financial performance indicators?

Financial performance indicators are metrics used to evaluate the financial performance of acompany or organization. They include measures such as revenue, profit, return on investment(ROI), return on assets, debt-to-equity ratio and many others. These indicators are used toassess a company’s financial health and to make investment decisions.

What is a financial performance analysis?

Financial performance analysis is the process of evaluating a company’s financialperformance and position by analyzing financial statements, including the balance sheet, theincome statement and the cash flow statement. This analysis can be used to assess thecompany’s overall financial health, identify trends and opportunities for growth andmake informed investment decisions. It typically involves comparing the company’sfinancial performance to industry averages or other benchmark data and may also include ananalysis of the company’s management and operations.

How do you build a financial performance?

There are several ways to build a small business’s financial performance. Here are ahandful:

1. Increase revenue through sales and marketing efforts.
2. Decrease expenses by streamlining operations or cutting overhead costs.
3. Improve cash flow by managing accounts receivable and payable effectively.
4. Utilize financial tools, such as budgeting and forecasting, to make informed decisions.
5. Consider seeking external funding or investment to support growth.
6. Seek professional advice from an accountant or financial adviser.

What is financial performance of a company?

Financial performance refers to how well a company is doing financially, typically measuredby analyzing financial statements, such as income statements, balance sheets and cash flowstatements. Key indicators of financial performance include revenue, net income and returnon investment (ROI).