A business that uses accounting software has access to a wealth of financial reports that provide insight into its performance. Most entrepreneurs are too busy to understand complex financial numbers, whether they lack the time, interest, or training to do so. As you monitor your business healthcare, here are the numbers that you should be paying attention to.
Some small company owners, in fact, are unable to see the big picture because they focus on what they find exciting. It depends on your financial management to succeed, no matter what your skill or commitment level is to your craft, product, or service.
We won't allow that! To help you get and keep your profits up, let's look at the seven numbers you must monitor every month. The key financial statements of your business healthcare don't require you to have CPA credentials (cost per action) to understand how these numbers are interpreted and derived from them.
This requires you to use some accounting software to facilitate the process. You will be able to make smarter, more forward-looking decisions once you have a clear picture of your financial statements.
1. Profit & loss around business healthcare
As the saying goes, “What's the bottom line?”. Considering that, Profit and loss (P&L) is shown directly in the statement. P&L statements include what's known as the 'bottom line' - the number showing whether the company made a profit and how much it has lost.
This is essential in terms of business health-related because after subtracting expenses from income, profit (also known as "net income") tells you how much money you have earned. Analysis of your P&L on a regular basis (i.e., once a month) will allow you to:
- Look for ways to decrease expenses if they're impacting your profits and monitor how much you're spending on them
- You will want to know when you have the least work and earn the least money so you can cut back or increase your sales efforts at the right time
Ensure you know your revenue trend-even though you might be on an upward trajectory in terms of income, you can determine why your profits have been impacted by expenses and make the necessary changes. Consider reducing your expenses or raising your rates, for instance.
In the end, if you don't make enough money to pay yourself a living wage, your business health won't be sustainable. You need to keep an eye on the "bottom line" of your business to be sure that you are paid what you want.
It is important to invest in things like equipment, office supplies, transportation, training, and advertising in order to operate a successful business and maintain great business health. You may find that your expenses are growing quickly, and even surpassing your revenue-depending on what kind of business you run.
Your accounting software needs to be updated daily and monthly to reflect your expenses. If you accomplish this, your profit and loss statement will reveal your business health.
However, many accounting solutions will also show you the categories of expenses you've made in an expense report. It may be possible to reduce your expenses by reviewing your expense patterns.
As far as tracking expenses are concerned, the only job you have is to ensure that they aren't increasing faster than your revenue. You should only make long-term investments if you are attempting to hire a new employee or purchase equipment that you will be able to use in the future.
3. The accounts receivable for your business health
Want money to fall from a tree whenever you shake it? You get as close to it as possible with accounts receivable, or A/R.
In terms of business health, you can view your A/R as a line on your balance sheet, which is another way to view your financial situation. It is just a fancy way of saying "money I owe." This is the balance of all unpaid invoices. In the upper reaches of the tree, you have a lot of money if the receivables are high.
Look at your A/R if you have troubling profit and loss figures. Business owners experiencing financial distress are often the victims of late or unpaid invoices. You must maintain good communications with clients to ensure that they pay on time and keep the cash flow going. The payment reminders available within many accounting software tools make it easy to stay on top of things.
You'll be able to make better decisions about what to invest in and when you know what your A/R numbers are at any given moment.
4. Profit by Client
The client experience differs from client to client. Among the many different types of businesses, some are substantially more profitable than others. Profit is more important than fees when it comes to choosing the best clients.
Sometimes it can be exciting to receive a big-name client, but you will need to make additional investments in equipment, insurance, traveling, and other expenses to keep the client. Even though they may be paying more, they're also paying more for the service.
Conversely, you may find some of your smaller clients don't pay much, but their projects end up yielding a lot of profit.
A revenue report by the client may be provided by accounting software. You can see that this financial statement may be eye-opening to see what each client is "worth" to your business healthcare but to better understand how much profit they can generate, you'll need to take an extra step.
You deal with clients to earn a living, so subtract all of those expenses from the fees you received from them. Gross profit is what you earn.
Calculate their profit by dividing their time spent working on their projects by how many hours you work with them. You earn that amount per hour.
See which clients have the highest wages so that you can determine which are most lucrative. Marketing your business should be geared toward getting more profitable clients, even if they are not the biggest projects. This is the quickest and most efficient way to earn money and have stability in your business health system.
Here is a video about the importance of considering certain numbers in your business, to keep certain businesses healthy:
5. Capital Flows through business health
A small business owner may find cash flow to be one of the most difficult concepts to grasp. A cash flow statement records the amounts of money that enter (income) and exit (expenses) your business over a specified period of time. At the end of a time period, your cash flow statement shows the amount of cash available.
It is still possible to have a cash flow problem even if your P&L shows consistent profits. Perhaps you invoiced for a large project, but the payment term is 60 days, meaning you won't receive any cash for quite some time.
Likewise, if, while waiting for that cash to come in, you need large investments in equipment, your expenses may appear reasonable based on your income, but you'll not be able to pay them.
Keeping track of your cash flow statement regularly allows you to make sure your purchases are appropriately timed and your clients pay you promptly and receive the correct business healthcare.
6. Item Sales
Is it of interest to you how much you make from each sale and how many times you sell something? These insights can typically be found in an item sales report provided by accounting software.
A vital piece of information for your business healthcare is this one since it shows you your profitability for each product or service. If your best-selling product is making a profit, you can see here if it's even delivering on its promises.
Likewise, you can analyze their profitability under different discounts. A financial statement, such as an item sales report, can give you valuable information that will assist you in deciding what items should be given your attention and which ones should not.
7. Profitability of a project in your business healthcare
If you have employees working on your projects, do you want to know how profitable they are to your business health? Details concerning the project's profitability are entered here.
You can track the profitability of your projects with certain accounting software solutions that offer a Project Profitability reporting tool.
The tool accounts for the time and expenses that your team members track for projects, which can be used to make better project-management and business-related decisions in the short and long term.
The Bottom Line on Financial Numbers
Financial numbers prove that the old saying, 'Failing to plan is planning to fail,' really holds true.
Business health is largely determined by numbers, whether one likes it or not. These people can provide you with information such as:
- In order to be most profitable, what kind of clients to target
- Profitability of a business or project is based upon how much you earn
- Is it reasonable and affordable to invest capital
- Investing in your business when the time is right
- How much and to whom your clients owe you
- Past performance will give you an idea of what you can expect
A real-time cash flow analysis for your business health
Both big and small businesses should consider these metrics when making decisions. Check on the cash flow statement on the first of every month, as recommended by accounting experts. As a result, you can adapt your strategy in business healthcare as necessary.
After some practice analyzing your data on a regular basis, you might produce additional reports that will assist you in measuring your business' success, through your business health.
It's an investment that will pay off in the long run if we make the use of these 7 numbers and their corresponding financial statements a priority.
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