CEO Insights

How To Utilize Real-Time Data to Improve Your Business’s Financial Health

Measuring your business’s financial health is critical to its long-term survival and requires real-time data. But if your data isn’t in an easy-to-access place, you can’t successfully track or improve your company’s financial health. Automation software helps you keep a finger on the company’s financial pulse, giving you real-time cash flow and spend visibility to make better business decisions.

What’s the best way to measure your business’s financial health?

The answer, unfortunately, isn’t as simple as calculating net profits. That’s because the health of a business depends on several factors, including the industry it occupies, the stage of growth it’s in, its unique challenges, and more. Unfortunately, there’s no “magic” metric or number that will deem your organization as healthy or not.

Painting a clear, well-rounded picture of your financial health requires a smattering of key performance metrics considered in aggregate. Unless you’re a publicly listed company (which most U.S. businesses aren’t), you aren’t required to produce and publicize your quarterly and annual financial results. As a result, there’s a good chance those numbers still live in a disparate jumble of spreadsheets somewhere in the cloud or a shared server, making it difficult to determine your business’s financial health accurately.

The High Stakes of Financial Health

Financial awareness is not lost on most leaders—financial or otherwise—in growing organizations. After all, the data paints a pretty grim picture of companies’ long-term survival odds. Roughly two in ten businesses fold during their first two years of operation. Another 45% don’t make it past their fifth birthday, and 65% are dead in the water by year 10. Just one-quarter of new businesses will grow old enough to drive with a learner’s permit (i.e., reach 15 years).

A business can fail for many reasons—from no market need to a wrong location choice—but its demise often boils down to poor financial planning and management decisions due to a lack of spend visibility. In its most distilled form, financial planning is about understanding your business’s cash flow, both in and out.

If you have high spend visibility, that means you maintain a good overview of your company’s spending patterns. As a result, you can use that information to make more informed, accurate decisions about where to route your finite resources to streamline operations and improve your margins. On the other hand, no or low spend visibility (meaning you don’t track your spending in any meaningful way) will sow operational chaos, drain your resources, and most likely lead to your business’s untimely demise.

Today, most businesses fall somewhere in the middle—but it’s not because they don’t want to increase their visibility. Rather, companies remain ignorant of their holistic financial health because they’re mired down by the way things have always been done.

For example, the month-end financial close is one of the most critical processes for any company leader, specifically for the finance department and CFO. It begins with recording journal entries for each transaction made that month and concludes with preparing for the following month. However, there are a whole host of steps in between. If you cover all your bases, you’ll have financial reporting that accurately reflects your company’s financial health.

The Power of Automation

Automation is known to help accelerate tedious processes, but it does more than that; it also frees accounting teams to focus on more strategic initiatives and lets you keep a finger on your company’s financial pulse. That’s because automation allows you to gain real-time cash flow and spend visibility. Remember, the more visibility you have, the more you can maximize your business’s overall efficiency and minimize risk.

Despite the proven advantages of folding real-time financial data into accounting processes through accounts payable automation, skeptics prevail. More often than not, their intentions are good. For instance, many business leaders believe sharing data across departments puts their company’s sensitive financial information at serious risk.

With data breaches growing more prevalent by the year, this is a valid fear, but business leaders needn’t worry. Today’s AP automation software is armed with sophisticated data protection measures that significantly lower the risks and enhance the rewards of real-time data sharing across the entire team.

There are a few measures that are put in place under financial controls:

  1. Ongoing screening, supplier vetting, and validation: Get peace of mind that you won’t unwittingly pay dubious payees on the Office of Foreign Assets Control, Anti-Terror, and Anti-Narcotics lists and reinforce the security of sensitive payment data via a self-service portal that collects and stores the information.
  2. Electronic payments: Automated clearing house, global ACH, and wire transfers are inherently less risky and offer less chance of fraudulent payouts. (These aren’t to be confused with online payment methods.)
  3. Data access controls and signatory rights: Gain more control over who has access to what, minimizing internal risk and fraud (both friendly and nefarious).

Another common reason we see businesses resisting real-time data is that they haven’t yet embraced cloud-based solutions and automation tools that make that financial data readily available. So, step one in this process is to implement AP software solutions that can help automate the capture of critical financial data from source documents.

Because all the data is digitized and stored within a single system, you can consolidate entities, geographies, accounts, and payment methods in a single report. You’ll be able to gain detailed knowledge of every payment transaction and sync those results with your enterprise resource planning or accounting system to reduce human error and take the pressure off the monthly close.

Achieve (and Maintain) Financial Health

Armed with real-time financial data, you can start the process of improving your business’s financial health. Consider these four steps:

  • Build efficiency with the right technology solutions to stabilize operations and adapt to rapidly changing market conditions and business needs. COVID-19 is perhaps the most salient example of how circumstances can change quickly, but the global pandemic is far from the last market disruption we’ll see. Use your real-time financial data as a bellwether of change and learn how to balance short- and long-term needs to withstand unpredictability.
  • Ensure spend is reviewed and approved throughout your finance workflows to support global operational decision-making. As mentioned, successful finance leaders accelerate the financial close and provide real-time cash flow and spend visibility while improving supplier payment transparency.
  • Implement smart, automated controls to help your finance department stay lean while avoiding rogue spending and costs, reducing fraud losses, eliminating noncompliance penalties, and establishing audit-proof operations. According to Tessian, human error causes the vast majority (85%, to be exact) of data breaches. The more automated you can make your accounting workflows, the fewer human errors you’ll need to deal with.
  • Transform the entire global payment operations to stay economically healthy.

Unfortunately, no business is immune to the effects of poor financial health. With that simple reality in mind, build a more resilient organization by leveraging automation to capture real-time financial data, build accounting efficiencies into your workflows, and increase visibility.

Written by Alex Cedro.
Have you read?
Top Actions CFOs Can Take to Contain Costs Within Their Supply Chains by Ali Hasan Raza.
Overcoming the Challenges of Launching a Unique Business by Vanessa Lau.
Critical Mistakes to Avoid in Strategic Communication by Fotis Pantopoulos.
How to Plan Business Travel Effectively in 2023 by Robert Hoffman.
No Means No by Mark Petruzzi.

Track Latest News Live on CEOWORLD magazine and get news updates from the United States and around the world. The views expressed are those of the author and are not necessarily those of the CEOWORLD magazine.
Follow CEOWORLD magazine headlines on: Google News, LinkedIn, Twitter, and Facebook.
Thank you for supporting our journalism. Subscribe here.
For media queries, please contact:
Alex Cedro
Alex Cedro is the senior finance executive at Tipalti, a payment automation software that streamlines the AP and payment management workflow in one holistic cloud platform.

Alex Cedro is an opinion columnist for the CEOWORLD magazine. Connect with him through LinkedIn.