True, the life of a bank account is rather dull; but everything depends on the regular beat of this heart to keep a company financially healthy. Because only then, the owner is doing well economically.

We have looked at the importance of liquidity in another article. Today, we will examine, where the monetary flows originate and how they work as an indicator for your company’s health.

The basic goal of every company is a financial gain, or more precisely, a long-term positive monetary flow. So, all short-term fluctuations aside, if the long-term flow shows an upward tendency, the company is doing well. Congratulations! But still, you should take a closer look at the monetary sources affecting this trend in your company.

Every little thing you do – your daily business operations

Anyone producing a good or providing a service knows this: it’s all about the net revenue. Jobs may require advance payments, production needs raw materials, production tools and facilities. And, of course, the working hours need to be paid. At the end, the raw financial gain is, what really matters.

So, let’s say you accepted a contract job that yielded 1.000 Euro, but your expenses to complete it was 900 Euro. That’s only a 100 Euro net gain then. If you want to earn more, you need to increase the difference, the margin of profit, by either lowering your expenses or increasing your payment. Unless you have a monopoly on your ware or service, you will also always have to mind the competitors and the prices they ask. So, your options are limited.

Basically, it can be said that if your business operations yield any profit at all, it’s a good indicator that you are doing well.

Spend money to make money – your investments

Some expenses may put a small dent in your company bank account for a short while but will turn a profit in the long term. The best examples are means of production. The company invests in its own equipment to be more productive in the future.

If a designer for printed media needs to go to the print shop for every job, he will pay to use their printers and possibly the raw materials, unless he brings his own. If, however, he can afford his own industrial printer (including the ink resp. toner, paper and maintenance contract), he will save himself not only the way but also all of the additional expenses, the print shop as subcontractor would bill him for each individual job. Should the designer sell the printing machine again in the future, it would reversely yield a short-term financial gain.

So, even if it is an expensive acquisition now, and as such, a negative money flow for the company bank account, it pays off in the long term, because it lowers production cost.

Thus, if the sum of all investments lightly flattens the generally positive revenue curve, it is a good indicator. It means that you continuously invest in your company because your business is growing!

Can you help me out here? – Funding options

Taking up a loan is a useful means of increasing the available capital from an external source, without involving your own business operations or selling off your means of production. The advantage is obvious: you are financially liquid and able to cover your own expenses. The disadvantage is, that you won’t get this additional money for free. Depending on the source of the money and the loan period, the creditor expects to receive a higher amount of money in return for helping in the time of need.

If you choose to use a loan as a funding option, consider carefully if and when you will be able to pay back the higher sum. Used as an indicator, this part of your working capital should be increased only in the short term, while slightly decreasing in the long term – meaning you successfully pay back your loans.

This heartbeat tells if your company is financially healthy

In summary, a company is doing well, as long as the ‘heartbeat’, meaning the constant ebb and flow of the monetary streams get stronger in time. Short-term fluctuations are natural because every business has expenses and income. But as long as there is a gain in the total, it’s a great sign – your company is growing strong.

Ideally, all your financial business needs should be covered by the revenue generated by your own operations. But sometimes, this financial leeway is insufficient to handle all possible situations. Funding options are therefore perfectly suited to ensure sufficient liquidity in the right moment.

We recommend using the prefinancing solution offered by Finiata; it features less restrictions than any bank, while maintaining a manageable fee. And by the way: account creation is free, so is checking and assessing the uploaded invoices.

How did you like our article? Do you have questions or comments? Leave us some below, we’re glad to hear from you!

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