by Industrius CFO | Financial Analysis, Financial Health
When you’re starting out on the road toward building your start-up or small business, it’s hard to know where the journey will take you. You can guarantee that there will be a long road ahead, full of ups and downs and twists and turns, but how can you ensure that your final destination is a business that flourishes, rather than one that fails? The failure and success rates of start-ups and small businesses aren’t encouraging. According to the Small Business Association, only about 20% of small businesses won’t survive their first year, but the numbers dramatically increase year-over-year—contradicting the popular idea that most start-ups and small businesses fail within their first year of operations. In fact, many businesses fail during their highest years of growth. Only about half of start-ups and small businesses survive beyond five years, and only about one in three remain at 10 years. To avoid failure and to flourish in an ever-changing and often unforgiving market and economy, you need a co-navigator; a partner to help guide you through the essential planning that can help your start-up survive and thrive, and help you avoid the pitfalls that can take down small businesses before they have a real chance. When you have a love for your business, you’ll know everything about what you do, what you offer, and why. But in order to survive, and thrive, you also need to be an expert on everything else about your business; your financials, your competitors, your industry, and how it all applies to your growth and success. If you haven’t been in business very long, or at all,...
by Industrius CFO | Financial Analysis
Liquidity and profitability are two of your business’s most important key performance indicators. In their own way and together, they demonstrate whether your business currently is or can be successful and they indicate your potential for growth and sustainability. Your liquidity has an impact on your profitability and your profitability will have an impact your liquidity—so while the two are not one-in-the-same, they do go hand in hand. Simply explained, liquidity measures the time and ability it takes to convert your assets, such as accounts receivables, into cash to manage immediate and short-term financial obligations and/or emergencies. It is calculated by a set of liquidity ratios, most commonly the Current Ratio, Quick Ratio, and Cash Ratio. Profitability is how well your business is actively generating financial revenue relative your business size, calculated by profitability ratios such as profit margin ratios, operating margins/operating ratios, asset return ratios as well as Return on Equity and Return on Investment. Both are measures to help business owners to assess and analyze their ability for growth and sustainment. Having adequate or high liquidity does not mean a business is profitable – it simply means there are enough assets to sufficiently cover immediate and short-term expenses. And even if your business is profitable, that does not necessarily mean you are adequately managing your current financial obligations. It can come as a complete shock to some business owners to realize that a company that is profitable can experience a financial crisis and may not be positioned for long-term growth, or even have enough liquidity to cover short-term financial obligations. Understanding how to leverage liquidity and profitability...
by Industrius CFO | Financial Analysis, Financial Health
Starting up and staying in business is not without risk. But with the right understanding of industry metrics, combined with the application of accurate and intuitive financial and business data and analysis, the risks you face can lead to rewards—and the business risks themselves can even be rewarding in their own right. Business risks are inevitable, and they appear in all internal and external forms. The risk variables you may encounter depend entirely on the specifics of your business and industry. Varying levels of risk are within some scope of your control, such as operational or legal risk. But other factors, such as an ever-changing economy, competitors, new products and services being introduced to the market, demand fluctuations, market regulations, and national and international trends, have a bearing on your business and are completely out of your hands. When you combine those factors with effectively managing your business’s financial risk—financial transactions, loans, liquidity, assets, and accounts receivables—balancing it all is a difficult task. That’s why 25% of businesses fail within their first year, and the failure rates continue to increase year over year. Effective risk management is critical to assessing your current business standing and positioning your business for short- and long-term success. It is easy to fall into the trap of feeling secure in running your numbers, looking over a spreadsheet, and then simply assessing from there whether your financials look good or bad. But that is not enough. This approach will set you up for failure, not success, because you’re not looking at the full picture—you’re only focusing on today, not effectively forecasting for tomorrow. It’s not...
by Industrius CFO | Financial Analysis
The IndustriusCFO team is proud to announce that our financial analytics tool has passed the standards of leading B2B software review platform FinancesOnline. We receive a positive score from their experts and they commended IndustriusCFO for delivering “sound, reliable, and current financial data.” In addition, we received two prestigious awards: Rising Star for 2018 and Great User Experience. The Rising Star award for best financial reporting software indicates that IndustriusCFO is on track of its vision in helping businesses strategically drive their business’ growth and improvement. This distinction is given to software solutions that have received generally positive traction from clients, thus leading to a significant increase in popularity on the market. The second honor we received, the Great User Experience award, signifies that IndustriusCFO makes it easy for businesses to accomplish their goals. This recognition is given to accounting software solutions that allow for ease of use in facilitating the work process through well-designed functionalities. In their written review, FinancesOnline highlighted that IndustriusCFO allows users to quickly pinpoint ways to improve financial status of clients, easily identify your company’s ranking among peers, identify loan-servicing issues, and create actionable strategies for business improvement. IndustriusCFO makes this possible through functionalities such “a robust set of next-generation financial intelligence solutions” and high-quality benchmarking data, stated FinancesOnline. To learn more about our sofrware or to schedule a free demo, contact us...
by Industrius CFO | Financial Analysis
So, you are considering investing in a budgeting and planning software to help you manage your business’s finances. That is a wise decision. Here are some of the services and functions included in a software package that will benefit your business. What does financial data analysis software include? Business valuation: With financial analytics software, you can easily evaluate your company’s market value in order to determine your standing in your specific industry. Financial risk analysis: Financial software can help you calculate risk and prepare for financial problems. Risk analysis basically involves creating a comprehensive strategy called a Risk Management Plan (RMP) to keep your company profitable in the face of cash flow disruption. Using the right financial tools, you can review your company’s financial health and its ability to stand up against market fluctuations. Performance scorecard: Financial data analysis software will provide you with a snapshot of your company’s financial status so that you can easily comprehend your business performance. Liquidity analysis: You can analyze your liquidity by determining working capital needs while modeling techniques to improve cash adequacy with “what-if” scenarios. Industry metrics: In addition to viewing your own data, you can view the annual statistics, ratios, and financials of your competitors in the industry. The sad truth is that 25% of businesses fail after their first year. Half of these businesses fail because of simple “incompetence.” These companies are financially illiterate; they have no understanding of pricing, lack proper budget planning skills, have no experience keeping records and following market trends, and live above their means. By the end of their fourth year, 50% of businesses have...
by Industrius CFO | Financial Analysis
If you are starting a brand new business and you don’t have any kind of budgeting software or financial performance analysis tools, you better be a human calculator with a photographic memory. Between 2013 and 2014, over five percent of surveyed businesses ceased operating because of inadequate cash flow. In fact, as many as 25% of businesses fail within their first year, 36% fail after their second year, and by the end of their fourth year in business, 50% of businesses have failed. Financial data analysis isn’t easy without the proper tools. Can you calculate current assets, compute profit margin ratio, and conduct business valuation by hand? Probably not. Here are some of the worst cash-flow mistakes a small business owner can make: Overestimating future sales: Too many business owners overlook past data and market trends, riding along on intuition and pure optimism alone. You may be smart, but you’re not a psychic. You need to be able to accurately calculate the value of your company and predict your profit margin in order to run a successful business. By applying quantitative forecasting methods, you can use past revenue data from other businesses in your industry as a foundation for tracking trends and anticipating future sales. Spending recklessly: They say “it takes money to make money,” and while this is often true, there is certainly a limit. Budget planning is essential. Make sure you are spending your resources on expenses that will benefit your company’s profitability. It is not always easy to see, which is why a budgeting software can be so useful. Being too laid-back about past-due receivables: You...
by Industrius CFO | Financial Analysis
Understanding financial ratios is essential to cultivating a healthy business. Between the years 2013 and 2014, 5.2% of surveyed businesses failed as a result of inadequate cash flow or sales. Many of them probably did not even realize the magnitude of their financial problems because they were not able to calculate and interpret their financial ratios. This kind of “incompetence” is the reason nearly half (46%) of businesses fail. Three Categories of Financial Ratios Growth Ratios Growth rates indicate how quickly a company is growing. This includes: Sales — Sales, also called operating revenues are stated in terms of the percentage of growth since the previous year. Dividends — Dividends are a good indicator of the financial stability of a company. The percentage of change in dividends should never be negative. These excess profits are often reinvested back into the company to increase the rate of growth. Net Income — Net income determines how much money is left over after subtracting operating costs. Price Ratios Price ratios establish a stock’s selling price in the context of the company’s profitability. This includes: Price/Earnings Ratio — This is the stock’s current price divided by the most recent 12 months earnings per share; it indicates a projection of future growth. Price/Sales Ratio — This is the stock’s current price divided by the most recent 12 months of sales. Business Profitability Ratios Profitability ratios, also called profitability margins, measure a company’s operating efficiency and generally look at the business within the context of its industry. This includes: Net Profit Margin — This is the ratio of net profits to sales and is one...
by Industrius CFO | Financial Analysis
The unfortunate reality is that one out of every four businesses fails after its first year in operation. This number increases to 36% after the second year and 50% by the end of their fourth year in operation. About 5.2% of these businesses fail as a result of inadequate cash flow or sales, which happens when business owners and managers do not take the proper steps required to prepare for financial problems. When it comes to owning and running a business, risk is often inevitable, and lessening that risk is an essential strategy that must be learned and exercised with care. When you fully understand financial risk analysis, you are better able to predict the levels of uncertainty facing your business, thus making you better suited to avoid liability. For business purposes, one practices financial risk analysis to forecast the ups and downs of cash flow, identify factors surrounding stock returns, and perform statistical analysis to determine the probability of success and future economic troubles. Risk analysis is ultimately the first step towards creating a comprehensive strategy to keep your business profitable. Part of financial risk analysis is the establishment of a Risk Management Plan (RMP). An RMP is generated by a project manager and serves to estimate possible liabilities and the resulting effects they will have on the business. By outlining potential issues, companies are better equipped to handle such problems if they happen to occur. While it may be impossible to avoid these problems completely, professionals in risk management are able to identify and reduce certain risks before they escalate beyond control. Risk analysis is often completed...
by Industrius CFO | Financial Analysis
As many as 25% of new businesses fail after their first year. Between 2013 and 2014, 5.2% of surveyed businesses failed as a result of inadequate cash flow, and financial incompetence is the reason why 46% of businesses cease operating in general. Companies that have no knowledge of pricing, financing, or proper planning are doomed from the start. Do not let that be you. That is why creating a budget is so important and the use of financial performance analysis tools is essential. Starting a budget from scratch is not easy. It certainly helps if you wrote one in the previous year, but if you are a beginner, here are some tips for building a fool-proof budget. Develop a target Begin by estimating a realistic profit you would like to see within the coming year. Consider factors that could affect your sales numbers such as the economy or market trends. Starting with profits will help you determine the rest of your estimates for costs, expenditures, etc. Calculate expenses If you have been in business for a while, look back at your previous financial statements to see how much you have spent in the past. Look at salaries, rent, postage, utilities, taxes, travel, etc. If this is your first year in business, you will have to calculate predicted expenses, but know that it won’t be entirely accurate. Calculate gross profit margin Estimate the cost of goods including beginning inventory, shipping charges, etc; subtract that from your overall sales. Readjust figures After considering all of these calculations, you may want to go back and readjust some of your estimates. For instance,...
by Industrius CFO | Financial Analysis
For every company you have ever heard of, there are more than twice as many businesses you never knew existed — and that’s because they failed. One in four businesses (25%) fail after their first year. As many as 36% of businesses fail after their second year, and 44% fail after their third year. There are a good number of reasons businesses fail. Nearly half (46%) of businesses collapse because of mismanaged funds: poor pricing, lack of performance analysis and planning, no understanding of financial ratios, etc. Sometimes, businesses fail because of circumstances out of their control. The following stories are about two very successful businesses that came very close to failing during their first few years in operation. The FedEx story Frederick W. Smith founded FedEx in 1971 with the plan of being the first company to ship packages anywhere in the world overnight. Smith used his own $4 million and raised $90 million to fund his startup. Fuel costs skyrocketed in the United States over the next three years, causing FedEx to lose $1 million per month. Smith nearly had to declare bankruptcy when the company’s account whittled down to a pathetic $5,000. Having pitched for extra finances and being denied, Smith flew to Las Vegas and decided to gamble that last $5,000 in a game of Black Jack. Lady Luck must have been on his side that weekend, as on Monday morning the company’s bank account was miraculously up to $32,000. This small amount was enough to allow FedEx to operate for a few more days while Smith secured an additional $11 million to keep the...
