The status of finance in every business organization is the true measure of success. Businesses exist primarily to generate income. Naturally, during difficult times like the present one where business is generally under severe financial constraints, financial management is becoming the primary concern of many companies. The attempt to measure financial metrics during recession accurately is something companies cannot afford NOT to have.

When in the past, most companies were content with their financial metrics in place, those metrics will perhaps no longer suffice today, as the current recession has probably altered the way managers will measure success. With a lot of people unable to buy the products and indulge in activities they used to indulge in, businesses have to ensure that the cost of producing and selling are reduced to the minimum required to offset falling sales.

In measuring effectiveness of financial metrics, managers make use of a lot historical data. Generally, they would use cost of production and marketing or sales expenses to arrive at the most favorable profit margins. Another factor that will influence financial metrics will be the competition. Basically, no product of the same make and quality will differ much in their pricing. Using these data, they will also compute how many units should be produced to break even or earn a desired level of profit. In addition to these are estimates of a portion of credit sales that are expected to go unpaid for a long time or permanently.

During recession, all these computations are still needed, although the objectives may be drastically different. Companies that rely on high volumes of sales to earn profits may focus on strategies that will at least maintain sales or prevent it from falling into untenable levels. A greater portion of financial resources may be allocated to selling efforts. All kinds of incentives to motivate consumers to buy the product from drastically reduced prices to increased warrantees and the like are implemented even when they mean less profit. Obviously, this is in keeping with the current goal of staying afloat until more cheerful times come. The new thrust will probably require a new set of marketing metrics.

There are other ways that can be employed to gain greater financial viability and mostly, these will focus on increasing productivity. Eliminating extraneous positions that do not directly contribute to profit generation but maintaining the same level of productivity will enable companies to reduce prices to levels that people can afford, given their circumstances. Generally, positions that operate under administrative offices, such as human resources, research and development, and other support positions are considered overhead and are the first to go.

The more drastic measure is to cut down on production, which can mean two things: laying off employees or reducing their working hours. But these are remedies that are resorted to only when all else fail. To avoid this painful situations are the reason why companies have to formulate new plans, strategies, and new KPIs together with more appropriate financial metrics during a recession.

Whatever strategy adopted by the company to maintain a strong financial position, it must be accompanied with instruments that accurately measure financial metrics during recession.

The global recession is on full-swing. Many businesses are losing and some have even closed shop already. With a lot of people losing jobs and money when the once robust financial markets burst, spending is steadily shrinking – putting a lot of pressure on products and services that are not on the priority list of people’s reduced budgets. Managing finance KPIs during financial recession is a challenge that managers have to take up to avoid losing or bankruptcy.

In times of hardships, key performance indicators (KPIs) play vital roles in ensuring that businesses survive since they are the most effective methods in measuring management efficiency. KPIs measure the effectiveness of goals, plans, objectives, implementation strategies, employee performance, and most importantly, management processes.

It is obvious that the main concern of the company is to remain financially viable until the economic recession or the financial recession runs its course. Eventually, if the problem of poor sales persists for some time, companies are forced to cut production to avoid losing money on producing products and services that the consumers have no money to spend on for the present. Employees accept less working days, accept pay cuts, or lose their jobs altogether.

Reducing production to reduce labor costs is, of course, the last resort. Most companies will hold on as long as they can and will apply remedial measures to ease the effects of current financial hardships. Unfortunately, a lot of times, most of them are reduced to implementing rear-guard action for the duration of the crises. Managing finances when revenues are coming at a trickle is very challenging to financial managers and the help of all employees, especially those belonging to the top levels, is crucial. Financial management is essentially an organizational function that all must be concerned with. And KPIs for financial management must be products of decisive actions by management not just to avoid loses, but if possible, overcome difficulties.

Finance units do not exist independent of other departments. In fact, except for companies engaged in providing financial services as their main source of revenues, they mostly play support roles. Financial KPIs in the face of a financial recession in order to be effective must be based on overall company strategies applicable to current situations.

Financial management is about allocation of resources to generate income. In a situation where sales are poor and most of inventories are held in company warehouses or stock rooms and receivables are accumulating, the responsibility of identifying where the available resources of the company must go should be the task of top management. The first thing that the company must do is conduct an in-depth assessment status, identifying strengths and weaknesses, and drawing up appropriate plans and strategies based on the findings. Financial KPIs should be based on these plans.

Cost cutting is given; all expenses that are not necessary must be eliminated. However, determining the necessary expenses and the unnecessary ones can only be done after the plans that address problems are finalized. Without the viable plan of effectively managing finance KPIs during financial recession, it will be very difficult for businesses to survive.

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.