Understanding Your Financial Statements
Your businesses financial statements are the life-blood of the organization. All decisions about the growth and management of your business must be made based on an objective evaluation of the facts and the current financial condition of the company.
How much is my business worth?
Does my business qualify for a bank loan?
What can I spend on a marketing campaign?
When can I hire a new employee?
Can I purchase new equipment?
Am I pricing my goods and services correctly?
Is my current receivable position correct?
Quick Books and other accounting software packages have truly simplified the record keeping function of small to mid size businesses. With little or no planning you can load the software and begin entering transactions. This will produce arithmetically correct financial statements, but will they make sense to you, your banker or potential investor? The purpose of your Financial Statements (Profit & Loss and Balance Sheet) is to keep you informed as to how the business is performing and what actions are needed to improve the business or adjust as needed. They must be used as a regular part of your routine in managing the business and not simply a report you generate for the bank, accountant or business broker upon request or to file your taxes at the end of the year.
To accomplish this you need to ensure that the chart of accounts has been arranged to reflect your growth strategy (yes, you do need a growth strategy). The Gross profit calculation needs to be understood. The difference between your P&L and Balance Sheet must also be very clear to you. In addition, you should also develop an accurate cash forecasting tool and review the financial statements as early as possible in the following month after the books have been closed.
If you are not familiar with anything mentioned above, you will have real problems in making accurate and informed decisions. To correct this you do have options, speak to your accountant or contact Pharus Group at email@example.com or 772.223.3344.
Business Management / Sell Side Advisors
Don’t allow you competitors to be better informed than you are!