The importance of monitoring financial performance (2023)

How capturing data and evaluating your performance can provide you with the competitive edge.

Why you need to monitor business performance

One of the most important tasks successful business owners undertake is monitoring their financial performance on a regular basis. Management who understand where the business currently stands from a performance standpoint as well as where it’s heading hold a huge advantage over those who choose not to.

A lot of businesses owners make key decisions based on gut feelings. This is an incredibly risky way to run a business. Monitoring financial performance on the other hand provides key insights that help you answer questions about your business like:

  • What are the most and least profitable areas of the business?
  • Is the business gaining or losing financial strength?
  • Am I performing in line with my objectives and business plan?
  • What price point maximises profits?
  • How much cash will the business generate over the next 12 months?
  • How did we perform this month compared to last month?

Success in business comes down to how successful we are in answering these types of questions and making correct decisions based on what we’ve learnt.

By monitoring performance and gaining these types of insights, you’re inevitably able to make better business decisions and improve your business’s performance over the long term.

Managing uncertainty and risks in business

Monitoring your financial performance therefore creates more certainty and confidence in making both short and long term decisions. This in turn leads to a healthier business and faster growth rate.

It also allows you to outperform and outmanoeuvre competitors who fail in this regard. By capturing data and monitoring their performance, you have a consistent and effective platform for making decisions; something rivals do not possess. Management can then use this business intelligence to navigate the business through both good times as well as the more uncertain and volatile periods.

In fact, the most valuable companies in the world use data in this way.

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The importance of monitoring financial performance (1)

A key part of their success is their ability to use the data they collect to drive the business forward. In an increasingly competitive global marketplace, understanding your key performance metrics such as product profitability, cash flow, customer preferences, staff productivity etc provides you with a vital competitive edge.

How small and medium businesses can monitor their performance

You would be forgiven for thinking that capturing data and monitoring performance should just be the prerogative for businesses with large budgets who can absorb the cost and complexity of implementing such systems.

However, the rise of cloud applications provides a low cost flexible solution that businesses of all shapes and sizes can implement without breaking the bank. In today’s tech enabled world, there’s nothing to stop business both small and large, with different budgets and different resources at their disposal from monitoring their business and improving performance as a result.

Financial monitoring tools like Futrli, Spotlight and Fahthom to name a few, therefore present one of the biggest opportunities SMEs have had in decades to future proof their business and level the playing field against their larger counterparts.

The importance of monitoring financial performance (2)

Small businesses are spoilt for choice when it comes to app choice

Tools for monitoring business performance

These tools provide you with a performance dashboard that enable you to monitor your goals, the progress you make and all the key performance metrics throughout your business. By integrating with your accounting and other software you use to run your business, they automate data flow and provide real time information.

These tools therefore allow you to track your financial metrics such as profit margins, cash flow and other key financial and accounting ratios. However, your performance dashboard can also track your non-financial metrics (such as customer happiness and process efficiency); ensuring you have all the information you need to manage your business effectively.

The importance of monitoring financial performance (3)

An example of a performance dashboard in action

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They also crucially allow business owners to monitor their budgets and forecasts in real time. You can set your goals and targets for the year ahead, and track the progress you make in achieving these.

The importance of business planning is a topic in itself but sticking to your plan we often find is the hardest part. Tools which track your performance help you overcome this challenge as it ensures you don’t lose sight of your targets and empowers you to take corrective action when things fall out of line.

How frequently should I be monitoring business performance?

The frequency you monitor your performance varies depending on your sector and whether you’re a relatively new business with ambitious growth plans or a more mature business looking to consolidate your position.

For instance, a fast moving industry like retail or hospitality where there are many moving parts, will look at their performance metrics daily. Smaller businesses with a steadier and more predictable flow of work, may review performance weekly or monthly instead. Either way, the common denominator is that they continually review the important numbers in their businesses and make decisions quicker as a result.

The importance of monitoring financial performance (4)

Fast moving industries like bars and restaurants will need to review their business more frequently than others.

What performance metrics and financial ratios should I be monitoring?

Once you have decided which tool to use to monitor business performance, it’s time to think about exactly what metrics you need to track and review.

Selecting the right ones will depend on your industry, your goals, the risks your business faces and what department you’re looking to track. For instance, you may wish to track your marketing activity to ensure it’s making the company money and to understand what can be done to attract more customers. You therefore may wish to monitor lead generation, your lead to customer ratio and your marketing return on investment.

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A number of marketing key performance indicators (KPIs)

On the financial side, you will want to understand your profitability by tracking ratios such as your gross and net profit margin. You will want to ensure your business is healthy by monitoring your cash flow so you can spot any downward trends. You may wish to monitor financial ratios such as debtor days so you can assess whether customers are paying on time. If you’ve raised finance to support your growth, you will want to track your quick and current ratios for instance to ensure that the business is able to meet its debt obligations.

Whatever your business does, the key thing to keep in mind is that the metrics you track should help you make better decisions and improve business performance. They should help you answer key questions such as: What are the key drivers of growth, profit and cash? Are we on track to achieve our targets and objectives? Is my business sustainable over the short and long term? What are the most and least profitable areas of my business?

How to implement performance monitoring into your business

Once you’ve established what metrics you need to track, how frequently they should be monitored and what financial tool best suits your needs, it’s time to consider how to implement performance monitoring into the business so it becomes a key tool for making decisions and achieving your objectives. Here we touch on two key ways you can do this.

Management Accounts

The first place to start is to produce management accounts on a regular basis which for SMEs is often on a monthly or quarterly basis. A good set of management accounts needs a few core sections for it to be a useful and practical tool for better decision making.

We have established our own methodology to deliver meaningful management accounts with commentary and accountability to ensure you have quality information and a clear action plan for moving the business forward. This includes:

  • Summary: this page explains the key drivers of performance, what’s happened and identifies the next actions to take based on your results

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An example of a summary report

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  • Financial Fundamentals: this is what we call the summary profit & loss account, balance sheet and cash flow documents with comparisons to your budget and prior year
  • KPI and Analysis: Key Performance Indicators (KPIs) are used in the business to monitor progress towards its goals and objectives.

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An extract with visual analysis of business expenditure and cash inflows and outflows.

  • Action Plan: this is the link between monitoring and improving your performance. As business advisers, we help you set goals and agree specific actions for your team that will help you get there.

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Action plans allow you to set actions and monitor progress.

  • Appendices: this is where you will find the finer detail. If you need deeper insights to support a particular business activity, this is where we include all the relevant performance reports to assist with this.

Performance Dashboards

We’ve already touched on performance dashboards as a great way to keep an eye on your performance when you do not require the level of detail provided by management accounts.

If you’re looking for instant performance insights that allow you to check everything’s running smoothly at a glance, performance dashboards are the right tool to use.

All the tools and apps which are widely used for performance monitoring (including Futrli, Fanthom and Spotlight mentioned above) include a performance dashboard as standard. Even better, they’re available on your smartphone via the app store, your PC or any internet connected device. This enables you to keep an eye on your business and operations wherever you happen to be working from.

In summary

To summarise, capturing data and monitoring your business operations is vital to improving your performance and maintaining a healthy profitable business. If you know your numbers and you know how to interpret them, you know your business. As a business owner or leader, that’s a good place to be!

As Chartered Accountants and Business Advisers, Dolfinblue can help you with this vitally important task. When it comes to performance measurement, we ensure our clients have the insight, analysis and advice they need to run a profitable thriving business:

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We help you answer the key questions:

  1. What performance monitoring tool is right for your industry, your business and your specific needs?
  2. What information, metrics and ratios you should I be tracking and monitoring?
  3. What is the information telling me about my current and future performance?
  4. What do I need to do next to drive the business towards its goals and objectives and make more money?

If you have any questions, we’d love to hear from you. Drop us a line below and one of our friendly finance experts will be in touch to get the conversation started.

Book a meeting now


Why is monitoring financial performance important? ›

It's important to track and analyse your business's financial performance to make sure your business is running efficiently. Knowing exactly where you spend and earn money could help you identify problems early, find time and cost savings, and improve how you run your business.

How important is the performance monitoring? ›

The main aim of a performance monitoring system is to improve employee productivity and thus lead to an increase in the overall productivity of the company. As they say, “every penny counts” and so does the performance of every employee.

How do you monitor financial performance in an organization? ›

Here are a few tips on how you can monitor your business finances.
  1. Essential financial statements. ...
  2. Update your Aged Debtors' Trial Balance. ...
  3. Inventory records. ...
  4. Working Capital Statements and Financial Ratios. ...
  5. Fund and cash flow statements. ...
  6. Analyze your overhead. ...
  7. Analyze your marketing expenses. ...
  8. Evaluate your HR.
16 Apr 2020

How important it is to evaluate the financial performance of the business in the management and business owners? ›

Financial management is one of the most important responsibilities of owners and business managers. They must consider the potential consequences of their management decisions on profits, cash flow and on the financial condition of the company.

What is the purpose of the monitoring? ›

Monitoring allows results, processes and experiences to be documented and used as a basis to steer decision-making and learning processes. Monitoring is checking progress against plans. The data acquired through monitoring is used for evaluation.

What is the importance of monitoring in business? ›

Engaging in business monitoring processes allows you to have increased visibility on all aspects of the business, as you can better track or supervise activities throughout all departments. Having this visibility also allows departments to communicate about business processes more effectively.

What is the monitoring of performance? ›

Performance monitoring involves the measurement of performance over time against indicators of performance or key performance indicators (KPIs). Performance benchmarking is a complex activity requiring comparable, consistent, and validated data to be meaningful.

What is the importance of performance? ›

Continuous performance management helps managers identify when employees go above and beyond. It helps them track progress against goals and personal development and make informed decisions about additional compensation, such as pay-rises or bonuses.

How do you manage financial performance? ›

4 Keys To Effective Financial Performance Management
  1. Be Insights Driven. ...
  2. Simplify & Systemise Where Possible. ...
  3. Sharing Ownership Of The Numbers. ...
  4. Financial Systems Must Empower Finance.
20 Apr 2017

What is the financial monitoring? ›

The financial monitoring is a process of selecting, processing and analyzing the economic and financial activity indicators of SOEs, in order to strengthen the financial discipline and making the use of public patrimony more efficient by the public authorities responsible for its administration.

What is the best way to measure financial performance? ›

Two best metrics to measure the financial performance of a company in terms of profitability are the net profit and the return on assets. The percentage of net profit is the amount of net profit divided by the amount of sales times 100.

Why is it important to improve financial management performance? ›

Good financial management will help your business to make effective use of resources, fulfil commitments to your stakeholders, gain competitive advantage and prepare for long-term financial stability.

Why is performance measurement important to the success of the business? ›

The importance of performance measurement isn't always easy to justify, but it's necessary for performance improvement in the long run. Effective performance measurement helps companies identify their strengths and weaknesses, top high performers, areas for improvement, and helps set benchmarks with historical data.

How can a company improve financial performance? ›

On this page
  1. Get advice from a professional.
  2. Recover outstanding debt.
  3. Reduce or rearrange expenses.
  4. Sell assets.
  5. Offer markdowns or increase prices.
  6. Consolidate debt.
  7. Use new marketing techniques.
  8. Offer additional payment options.
2 Nov 2022

What are the benefits of doing monitoring? ›

Here are the main benefits of monitoring and evaluation:
  • Gives Clear and Concise Information on What is Happening. ...
  • Input Monitoring. ...
  • Risk and Reward Evaluation. ...
  • Assessing New Possibilities. ...
  • Overall Progress Report. ...
  • Innovation and diversity of Opinions and Thoughts.
2 Aug 2021

How do you monitor and evaluate performance? ›

Is the Work Getting Done? Five Ways to Monitor Employee Performance
  1. Watch employees work. One of the most effective ways to monitor an employee's performance is with your own eyes. ...
  2. Ask for an account. ...
  3. Help employees use self-monitoring tools. ...
  4. Review work in progress on a regular basis. ...
  5. Ask around a little.

What is performance monitoring explain with example? ›

Performance monitoring systems are tools used to observe cloud applications, log issues, trace, and alert DevSecOps teams about irregularities or issues with cloud infrastructure. Examples of performance monitoring systems include observability tools, APM, tracing systems, alert and dashboards, and more.

What is monitoring and improving performance? ›

Performance monitoring is used to analyze business goals and help save on operating costs while generating more revenue. It is also used to improve overall performance of personnel and management.

What are the main purposes of performance management? ›

The purpose of performance management is to ensure employees and teams are given the resources they need to develop, the recognition they deserve to be motivated, and the accountability to know what is expected.

What are the factors of financial performance? ›

The research results show that there are five factors affecting the financial performance of the business, including: growth rate, accounts receivable days, fixed asset investment, capital structure and business risk.

What are the objectives of financial performance? ›

Objectives of financial statements are the specific purposes or reasons (which may include the purpose of compliance, understanding the fundamentals of the company, measuring the financial strength of the business, reporting of the performance, results, financial stability, and liquidity to the various stakeholders of ...

How do you write a financial performance summary? ›

How to Write a Financial Report?
  1. Step 1 – Make a Sales Forecast.
  2. Step 2 – Create a Budget for Expenses.
  3. Step 3 – Create a Cash Flow Statement.
  4. Step 4 – Estimate Net Profit.
  5. Step 5 – Manage Assets and Liabilities.
  6. Step 6 – Find the Breakeven Point.
24 Feb 2022

Why is it important to monitor and modify your financial plan? ›

Review of your financial plan enables you to determine whether your pre-determined goals are achievable, given the present circumstances, and also allows you to make them more realistic.

What is monitoring and reviewing financial plan? ›

An essential component of financial management is a regular financial review of activity to identify errors, anomalies, potential compliance issues, and significant budget variances.

What is the most important measure of financial success? ›

Profitability is one of the most important indicators of a company's financial health. If you want your business to succeed in the long run, you need to be generating profit. While several different profitability ratios can be useful—including gross profit margin and operating profit margin—net profit margin is a must.

What is the most important financial measurement? ›

Return on equity ratio

This is one of the most important financial ratios for calculating profit, looking at a company's net earnings minus dividends and dividing this figure by shareholders equity. The result tells you about a company's overall profitability, and can also be referred to as return on net worth.

Is financial performance needs to be measured? ›

The Role of Measuring Financial Performance in a Business

In turn, you can implement effective plans to improve and grow your business. Financial performance is also important to investors and analysts as they use it to compare the following: Similar firms across one industry. Sectors or industries in aggregate.

What is the main importance of financial management? ›

Importance of Financial Management

Assists in acquiring and managing funds. Helps in funds allocation. Provides insights to make critical financial decisions. Cuts down financial costs.

What is the most important purpose of financial management? ›

The basic objective of financial management is to achieve optimal profit, both in the short and long run. It even includes wealth maximization, where every shareholder's value or hold over dividends should increase.

What is the importance of financial management essay? ›

Financial management systems help to proper use and allocation of funds which leads to improve the operational activity of the business organization. If the funds use properly, so it helps to reduce the cost of capital and maximizing the value of the firm.

What are the most important financial management issues today? ›

The Top Financial Challenges Faced By Small Business (and How To Overcome Them)
  • Lack of Cash Flow. ...
  • Insufficient Marketing and Advertising. ...
  • Not Using a Budget. ...
  • A Lack of Capital. ...
  • Unexpected Expenses. ...
  • Taxes and Government Compliance. ...
  • Mounds of Paperwork. ...
  • Hiring and Retaining Top Talent.

What are some tips for financial success? ›

Here are seven key tips for pursuing financial success.
  • Save Automatically. ...
  • Invest in a Workplace Retirement Plan. ...
  • Create an Emergency Fund. ...
  • Stick to a Budget. ...
  • Pay Off Credit Cards. ...
  • Avoid High-Interest Loans. ...
  • Pay Bills on Time.
6 days ago

What is the main purpose of monitoring financial elements within a project? ›

The primary goal of the monitoring and control process phase is to oversee all the tasks to ensure that a project is completed within the scope, time, and budget.

What is the purpose of a financial performance report? ›

A Financial Performance Report is a summary of the Financial Performance of a Company that reports the financial health of a company helping various investors and stakeholders take their investment decision.

How do you maintain financial performance? ›

  1. Get advice from a professional. If you haven't already, talk to an accountant or business adviser about your finances. ...
  2. Recover outstanding debt. ...
  3. Reduce or rearrange expenses. ...
  4. Sell assets. ...
  5. Offer markdowns or increase prices. ...
  6. Consolidate debt. ...
  7. Use new marketing techniques. ...
  8. Offer additional payment options.
2 Nov 2022

What does financial monitoring mean? ›

financial monitoring means a set of activities conducted by institutions (institutions carrying out transactions with funds), the designated authority and other public authorities aimed at combating money laundering and terrorist financing; Sample 1.

What are the principles of managing and monitoring financial performance? ›

The five principles are consistency, timeliness, justification, documentation, and certification.

What does it mean to monitor your financial plan? ›

Expenses – Track your spending and compare how you are doing versus the target amounts set in your plan. This is one of the most important steps in implementing your plan because it is where you have both the most control and the most impact on your financial situation.

What is the importance of performance report? ›

Performance reporting should help promote a “continuous improvement” feedback loop where reports on activities and performance provide important information to allow for the best possible decision-making in the next planning cycle.

What is good financial performance? ›

Financial performance is a broad term that describes a company's overall fiscal health. When you hear that a business has strong financial performance, that often means it has growing revenues, manageable debt, and a healthy amount of free cash flow.

How do you describe financial performance? ›

Financial performance is a complete evaluation of a company's overall standing in categories such as assets, liabilities, equity, expenses, revenue, and overall profitability.


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