If numbers are not your thing, but you are still responsible for the bottom line, here are some takeaways from our What Do the Numbers Mean workshop.
One thing you can do to understand, protect yourself and learn about your business is clean up your balance sheet. The balance sheet is the most important report you should be looking at. It summarizes a company’s assets, liabilities, and shareholders’ equity at a specific point in time. Bankers and CPAs rely heavily on a company’s balance sheet when considering the company for a loan or when completing an audit. Make sure to keep your balance sheet clean and have up-to-date records so that the company’s value is accurately presented. It’s recommended that you question your CFO or Book Keeper about what’s in that account and make sure you’re not carrying small balances on accounts that should be zeroed out. The bank likes to see a clean balance sheet.
Also, take a look at the accounts that make up the numbers on your balance sheet. Why? If your accounts receivable line is $550,000 and 80 percent of it is from your number one customer and the aging amounts are getting higher (that customer isn’t paying), you might need to do some evaluating of that customer. It’s a reminder to clean up your accounts, inventory records, equipment, and avoid affiliate accounts.
When reviewing your balance sheet, it’s always a smart idea to compare your current statement with prior periods to track your progress. It tells a story and you can see if you’re moving in the direction you want!
When looking at your P & L, you’ll want to compare it against your budget and compare it to your numbers from last year. Analyzing it against your budget allows you to adjust throughout the year to ensure you hit your goals and are staying on track.
The income statement is used to calculate financial ratios to see which expenses make up the largest portion of sales. Don’t forget to look at the ratios and compare them to make sure you are hitting your goals. (link the financial ratio’s sheet).
Another use for your income statement is to use it to benchmark your company against industry sales trends, inventory and accounts turnover, salary and compensation data, and net profit margins. Typically, your CPA firm can help with defining industry standards. It’s not a bad idea to benchmark your business against others in your industry to help you stay ahead of the game!
If you’re still not seeing the numbers clearly, Brian Kot or Ken Stemke would be happy to meet with you to dive into your numbers to help add clarity. I’m sure you’ll walk away with a list of questions to ask your accountant and banker!