Great bookkeeping practices and execution are just the tip of the iceberg for any business. We have had many of our clients explain to us that prior to working with us at SmartBooks, they had no idea if their business was making or losing money until income taxes for the last year were completed. Another major complaint is that although some clients received monthly or quarterly financial statements from their bookkeeping solution, they did not know how to read the reports and turn that knowledge into successful financial tactics and planning. Understanding which financial statements are important for your business, and making sure that the money you borrowed at no credit check loans will grow. How to make sure you are getting them (and in a timely fashion), and helping you, the business owner, use this knowledge for corporate health and profitability is one of the things we do best at SmartBooks.
8 Important Reports
These key metrics will give you a deep financial insight into the overall health of your business. Make sure you ask your bookkeeper, accountant, or controller to supply these reports on a regular basis:
1. Revenue growth; both compared to last year and compared to last month or quarter. You want to know how you are doing year-over-year as well as sequentially. How fast are your growing or shrinking?
2. Gross Profit; which is your revenue less direct costs of the products and services you sold. Look at both dollars and gross profit margin percentage of revenue. Again, compare last month’s result against the same month a year ago as well as against the prior month. Are you getting more profitable or less?
3. Compare your Sales and Marketing spending to your sales results. You can measure costs as a percentage of revenue. Plus, if you track total value of contracts signed in a period outside QuickBooks, you could compare the return on investment of your sales and marketing costs divided into the contracts sold as a result of that investment. Is your sales and marketing becoming more cost-effective or less?
4. Measure your General & Administrative costs as a percentage of revenue, and see how the overhead rate has changed from last year to this year, and from last month or quarter to this month or quarter.
5. Compute your Operating Profit margin percentage. QuickBooks calls this “Net Ordinary Income”. Consider maintaining a monthly graph of Revenue and Operating Profit going back 24-36 months so you can easily see your top line and bottom line numbers with margin percentage calculated. This may vary significantly from month to month, so a longer term perspective is important.
6. Days Sales Outstanding (“DSO”); which is a measure of how fast you are collecting your accounts receivables from customers. Literally calculates how many days’ worth of sales are you waiting to be paid by customers. Benchmarks vary by industry. Lower is better. If you can keep your DSO in the 30-40 day range, that is reasonable for many industries. No matter where you are now, you can usually improve. Compare your DSO to a year ago as well as the last couple months to identify any trends. To compute DSO: divide your month-end accounts receivable balance in the full month’s revenue and multiply the result by 30.
7. Review the year-to-date Cash Flow Statement. This is a report which translates your reported profit or loss against changes in your actual cash in the bank. As many business owners learned the hard way, cash flow can be very different than reported profits. The Cash Flow Statement shows why. Cash flow may vary significantly from month to month, so a longer term perspective helps.
8. Return on Equity (ROE) is an important metric for capital-intensive businesses with a lot of property or equipment or other investments. To compute the annualized percentage ROE, divide your quarterly profit into the shareholder’s equity on the balance sheet and multiply the result by four. If debt is a major part of your capital structure, then ask your accountant to substitute Return on Invested Capital instead of Return on Equity.
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