How well do you know your own business? Think about it.
You may know your own industry better than any outsourced accounting company. But I bet there is a lot of information hiding inside your QuickBooks accounting software you didn’t even realize was there. Financial reports and statements that could help you make better decisions about the way you run your business, if only you had someone to help you analyze it all.
Let’s look at three things your accounting team knows about your business that may surprise you.
1. Cash flow statement
Of all the financial statements your bookkeeper knows well, this one, along with your profit & loss statement, is probably the most familiar to business owners, as well. Your cash flow statement shows how changes in balance sheet accounts and income affect your company’s access to cash. This statement shows your company’s ability to pay its bills in the short term, especially to cover important expenses like payroll.
2. Profitability ratios
There are a number of profitability ratios that reveal how well your company is doing in terms of making money. They are an indication of how well you generate earnings compared to costs and expenses. Unlike your cash flow statement, profitability ratios don’t show how much cash you have on hand to pay cover debts and expenses, but indicate how well your company is making money – how much your income exceeds your expenses.
Some of the most popular and helpful profitability ratios include your gross profit margin, return on assets and return on equity. Typically, you can tell how well your business is doing by comparing your profitability ratios to that of your biggest competitor. You may also compare the profitability ratios of your own firm from year-to-year to get an idea of your growth. Be careful when evaluating profitability ratios to take seasonal changes in profits into account.
3. Burn rate
Of the three kinds of financial data we’ve mentioned in this post, “burn rate” is probably the least-talked about, yet one of the most important pieces of data for business owners.
As we’ve discussed previously, your burn rate is a single figure that shows how much money you spend per month. When that figure is evaluated in comparison to how much cash your company has available, you’ll know exactly how long you can stay in business before you need to begin making a profit or gain another cash infusion from venture capitalists or through a business loan.
Making Sense of Financial Statements with Virtual Accounting
There are dozens of financial statements that can help you make the best decisions for your company. Often, though, business owners rely on either the same financial statements again and again, or ignore important accounting data because they don’t know how to analyze the numbers they see.
Your virtual accounting services team, including bookkeeping services and financial controllers, can help you generate and analyze the important financial statements that will help you make better decisions for your business and guide it toward greater profits.