The first thing you need to know is your cash flow. Tracking cash flow is the foundation of your financials. If you’ve already established a way to track cash flow, then you can go on to the following ten business financials to track. Although the following may seem like a big list, there are several software programs and financial experts that are available to help you out.
Tracking your equipment, furniture, real estate, and other assets may seem like an easy task, but to get a true idea of the value of your business, you also have to track the changes in the value of those assets. Typically equipment and office furniture decrease in value whereas real estate value tends to increase. Since these numbers are always adjusting, the value of your assets should too.
Simply put, liabilities are what you owe. A loan is a common liability for almost every business. With loans, it’s important to make sure you’re keeping track of the amount you’re paying toward the principal versus the interest. Other times, what you owe isn’t always as obvious as a bill from your landlord or a loan payment. One liability some tend to forget about is payroll taxes. The amount of payroll taxes your business pays will depend on the size of your business and the number of employees.
How much does it cost to produce what you’re selling? If you’re buying a finished item for resale, this number is relatively easy to figure out. When it comes to selling other products or services, it can be more difficult to calculate. Be sure to factor in things such as labor costs that go into the manufacturing process.
What does it cost to sell what you sell? Things such as advertising, marketing, labor, and general overhead expenses are useful to know so you’re aware of how much it costs to get your product sold.
Your goal should be that your gross profit margin is staying consistent or trending upward. This is a good indicator that you’re on track for a successful business. If you see that your gross profit margin is declining, it could be an indicator that you should increase your prices or decrease your costs.
The gross profit margin is calculated by dividing your total sales into your gross profit.
This ratio can let you know how much of your company’s items, such as equipment, is actually owned by someone else such as a banker or lender. Having this ratio climb too high can be a financial indicator that something needs to change.
This is the money you’re owed. If your accounts receivable is on the rise, your business may want to consider invoice factoring. Not only will factoring provide you with same-day cash, but if you factor your receivables with TCI, we can help make sure that the customers you’re working with are going to pay you. Credit analysis and risk assessment is just one of the added services TCI offers its clients.
This number also referred to as Days Sales Outstanding (DSO), will tell you on average how many days you’re waiting for payments from your customers. If you’re waiting for 30, 60 or even 90 days for customer payment, it could be too long for you to be able to maintain and grow your business. However, with creative finance solutions like accounts receivable financing, you’re able to obtain the cash you need while keeping your debt-to-asset ratio down.
The standard formula for DSO is (accounts receivable ÷ annual revenue) × number of days in the year (365) = DSO.
For example, if a company has an average accounts receivable balance of $400,000 and annual sales of $2,200,000, then its DSO figure is 66.36 Days Sales Outstanding.
What do you owe? Keeping track of your accounts payable is an important part of maintaining and growing your business successfully. An increase in your accounts payable could reflect a large number of purchases overall – possibly to grow your business. However, if the increase wasn’t planned or isn’t managed, it can be an internal warning that your business financials could be at risk.
How much inventory do you have? There are occasions when building a significant inventory can be a good thing. If the prices for items you sell or use are relatively low, putting some of your money in inventory can make sense. Tracking inventory can tell you whether your business is increasing or slowing down. It can also tell you how much money is tied up.
Knowing how to create a cash-flow statement is one of the most important aspects when it comes to managing your business financials. The other ten items listed above can also help you get a good snapshot of the financial strength (or weakness) of your company. If you need assistance with your cash flow or accounts receivable, contact the financial experts at TCI Business Capital or call 800-707-4845.