Small business owners or managers
It's time for a 6-months review of your financial documents?
Here are 5 areas to research at this 6-months point in the year:
Gather up the past 6 months of your financial documents, balance sheets & income statements and your budget for a review.
What are your total liabilities and do they exceed your total assets?
Assets are a company's resources that are owned and include cash, accounts receivable, land, buildings, equipment, etc. Liabilities are what a company owes such as loans, accounts payable, interest and income taxes payable, salaries and wages. Owner's Equity is what's left after the liabilities are subtracted from the assets like here:
Assets - Liabilities = Owner's Equity. Using the last 6 months of balance sheets & income statements track your numbers to see a trend.
2. Review your expenses
What are your expenses and are they draining your profit or leading you into a loss? Are your expenses necessary to the operation of your business? Or could your personal expenses be nibbling away at your income?
3. On Target?
Are you on target, ahead or behind to your projections or budget? Is your business in a growing, maintaining or lagging? You can use your profit and loss statement or income statement and review the past 6 months. Comparing your actual numbers to your planned numbers highlights where you may be spending too much or not enough and again, you may be able to see a trend such as overspending on overtime payroll.
4. Improve your Income
Could your income be better? Are your services or products profitable? Is the revenue from your products and services covering your expenses and are you making a profit? To identify the areas of your business that are performing well or not, here are some financial metrics to consider and understand:
- Net Profit Margin is the overall view of your profitability. To calculate your net profit margin as a percentage the formula is (Net Income / Total Sales). For example if your sales were $500 and net income is $100, the net profit margin would be 20% because 500 / 100.
- Gross Profit Margin is your sales revenue minus the cost of goods sold. If you have a low gross profit margin you may need to sell more products to meet your sales goals. If you are selling the same products and your gross profit margin declines over time, you may need to evaluate your products and determine if your prices should be raised or material costs cut.
- Identify specifically by your product or service lines which are performing with the best revenue and net income.
5. Review these same results as last year or few years for a comparison. (We know, we only started with a 6-month review, but this is important also).
By taking the time now to do some analysis, you may be able to obtain insight into what is working and what is not working. Are your sales slipping for a particular product? Or have the costs risen too much to make a profit for a service? By performing a little comparative analysis, you can see bigger trends.
Not sure how to make heads or tails of your financials and what they mean? Contact a professional to assist you. Don’t panic if you are not meeting your goals, there is time to make any needed adjustments.