Controlling finance metrics during financial recession is a task that managers should not take lightly. The price of failure can lead to liquidity problems that can be fatal. Recession is a time for many companies to take bold and often painful steps to maintain good financial health.

Next to human resources, financial resources are companies’ most vital assets. Even without the additional hardships brought about by recession, companies normally employ all kinds of metrics to ensure that expenditures and revenues are aligned with the general goal of earning profit. The more, the better, as they say. But during a time of instability, financial metrics become doubly important to the management of any businesses.

There will be a general reduction in consumption of products and services during a period of recession. People are incapable of buying the products they used to buy when the times were good. With many companies suffering from poor sales, financial institutions are less willing to provide credit or lend only at high rates, further hurting businesses already laboring under financial pressures. It is a precarious situation needing wise allocation of financial resources.

Of the many financial metrics that companies utilize to measure success, the balance sheet and the income statement are the most important. They are the summation of all activities for a certain period. But during a recession, it is not enough just to see favorable bottom lines. These documents usually provide balances for current and previous periods so companies can get a clearer picture of what is happening. The most important numbers in the balance sheet are those opposite cash, inventories, receivables, and payables while in the income statement, managers will be advised to look at the numbers opposite sales, cost of sales, and all other expenses. Subsidiary documents are also provided to explain the figures better.

A balance sheet can be deceptive. It can show a profit and yet give signs of dangers. An increasing receivable balance is a danger sign. The danger is even more serious when the ageing of accounts shows that the balance of uncollected accounts falling under 90 days and above is becoming bigger. This means that collections are lagging behind. An accumulating finished goods inventory is another danger sign. This means that sales is not keeping up with production, but to verify the accuracy of the observation, managers only have to glance at the sales and cost of sales figures in the comparative income statement.

All of these, of course, have an impact on the most important asset of the company contained in the balance sheet – cash. Falling sales coupled with increasing receivables because of poor collections can only result to decreasing financial resources and if these go on long enough, a company can find itself with serious liquidity problems.

A financial metric that can be consulted when there is an immediate need for financial information is the daily cash position. This instrument contains all the receipt and disbursements details and cash balance at the end of the day. The daily cash position is an effective tool for controlling cash movements, as it allows management to allocate financial resources according to priorities. The daily cash position, along with the balance sheet and income statement, is valuable in controlling finance metrics during financial recession.