by Industrius CFO | Resources, Tools
It’s standard practice for business owners to analyze their current financial statements to gather a general idea of whether or not their business is performing well, and then making adjustments or staying the course based on that information. But that approach falls short of helping business owners gain the deep understanding they need to assess how they stack up against their industry peers, to remain competitive, and to sustain a profitable business well into the future. If you know how to dig deep, and have the right tools to do so, your business’s financial statements can provide much more than just numbers and facts—they will hold valuable insights into its health and viability, and a strategy roadmap to help guide current and future business decisions. Performing a deep dive into your business data requires learning how to determine, interpret, and forecast important calculations and scenarios based on a number of financial, business, industry, and competitive factors. It’s not an easy task to take on alone, and it’s not always easy getting the information needed to make those accurate assessments and evaluations. That’s why IndustriusCFO helps business owners and financial planners take their financial data well beyond face value. We created an innovative and intuitive engine that does all of the heavy lifting of a company’s financial analysis, and then we combine that with a database of more than one million private businesses across more than 2,500 industry segments—powering our benchmarking tools to help make relevant and timely industry peer comparisons and evaluations. So, what exactly does our in-depth data and analyses look like, and how does it help business...
by Amanda King | Resources
The longevity and success of America’s small businesses is crucial to our economy and economic vitality. Employing 120 million Americans across the country, small businesses create two out of every three new jobs. Small businesses have generated over 65% of the net new jobs since 1995. There are now nearly 28 million small businesses in the U.S, according to the Small Business Association. Small businesses are good for the community, too. A Civic Economics Study found if you spend $100 at a local business, about $68 stays in your local economy. But, if you spend the same at a large business, only $43 stays in the local economy. According to research from the CAN Capital Small Business Health Index, over half of U.S. small business owners expect growth this year. However positive the outlook may be from small business owners, the statistics state otherwise. The Small Business Administration reports that only half of all businesses survive five years and only a third survive ten years or more. Successful Business Growth Tactics So why do 14 million U.S. business owners feel optimistic about their longevity? Because they’ve implemented the right business growth strategies, such as developing a marketing plan, a business plan, and introducing new products in new markets at the right time. 1. When small businesses develop a marketing plan, it impacts their business. 38% of business owners will grow by expanding or trying new forms of marketing. Social media marketing has been proven to propel consumer spending. According to Synnovatia, 68% of millennials are somewhat likely to purchase after seeing a friend’s post about a product or service. 2. Business...
by Amanda King | Resources
Why It’s Important to Evaluate Your Company’s Financial Health Dynamic, fast-growing companies must adopt financial management solutions that can quickly adapt to their changing needs. Keeping tabs on your company’s financial health is important in order to help reduce costs, make smarter business moves, and to continue to grow. Keeping your company on track requires constant analysis, which includes understanding your financial position. Regular Checkups are Necessary In the midst of operating your business, owners may forget to step back and take stock of their company’s financial health. If you check in on your company’s financial health regularly, there won’t be any surprises! Have no fear – regular checkups are not complicated. Basic ratio analysis will get the job done by evaluating your finances, identifying potential issues, and determining whether your company is heading towards financial freedom…or a cash-flow crisis. You may be asking yourself: what should I measure? You should measure liquidity. Cash flow is the most important factor in operating a profitable company. You should constantly know what your current ratio is (your assets divided by your liabilities). The result of the ratio should be a number 1 or more. Understand Your Company’s Financial Health Running a company without understanding its financials is like driving on the freeway with your eyes closed. How can you know where your company’s financial health stands if you don’t look for signs along the way? Understand your financial dashboard, which consists of your net income statement, cash flow statement, and balance sheet. We recommend investing an hour of your time each week to analyze your income statement and cash flow statement in...
by Amanda King | Resources
A Company Financial Analysis in Just 12 Steps It’s important to perform a company financial analysis in order to see how the company is performing compared to earlier periods of time and how the company’s performance stands up against other competitors in its industry. “Financial Analysis is something of an art,” said Philadelphia University assistant professor of management, Harvey B. Lermack. While performing a company financial analysis can be involved, these steps will provide a basic foundation for you to get started. Experienced managers, investors, and analysts collect industry information over time that allow them to perform financial analysis of companies more thoroughly and more swiftly. But, for our purposes we will discuss the basic steps for you to start dabbling in the art of financial analysis. Step 1. Collect the company’s financial statements from the last three to five years including: Balance Sheets Cash Flow Statements Income Statements Shareholders equity statements These financial reports can be found in a recent annual report, in the company’s 10K filing, or on the U.S. Securities and Exchange Commission EDGAR database. Step 2. Analyze these financial statements and scan them in order to look for large movements in specific items from one year to the next. Lermack poses this example, “Did revenues have a big jump, or a big fall, from one particular year to the next? Did total or fixed assets grow or fall?” Also, look for suspicious activity. If anything jumps out at you, research what you know about the business to find out why an item is suspicious-looking. For instance, did the company sell off some of its operations during the period of...
by Amanda King | Resources
So, What is a Profit and Loss Statement? The Profit and Loss Statement (P&L), also known as the Income Statement, is an important financial tool. It summarizes your company’s revenues (net sales) minus costs and expenses (i.e., Cost of Goods) incurred during a specific operating period. The statement is usually done quarterly or annually. In other words, a P&L is a measurement of activity (revenue – expenses=profit) through time (whatever that operating period is). A P&L is similar to a Balance Sheet, which is an important measure of Assets & Liabilities. But, the Balance Sheet is a measure of activity at a certain time. Why You Need to Understand a Profit and Loss Statement A profit and loss statement shows how well your business buys and sells inventory or services to make a profit. As you know, a company needs to create a profit in order to survive and grow. If you analyze a profit and loss statement, you can determine your business’s cash flow that is available to repay existing debt, finance additional debt like loans in order to expand your business, or to reinvest in the business. Mark Staniszewski, IndustriusCFO’s account manager says, “A business needs to keep good records of their financial happenings. It’s important for business owners to understand their expense structure and monitor these expenses to ensure they’re achieving a healthy Gross Margin and Net Income as measures of profitability. The old adage is ‘you could only improve what you can measure’ and compiling your P&L is the first step in measuring your company’s revenue minus expenses.” In order to show you the positive impact...
by Amanda King | Resources
Start Championing Financial Analytics Using financial analytics was once seen as a fad. Now, using financial analytics has proven to be effective in many aspects of a business. It is used in many areas including forecasting financial performance, pricing products and services, identifying new markets, improving margins, strengthening operations and assessing and monitoring risks. The role of today’s Chief Financial Officer (CFO) has expanded past profit and loss, expense management and budgetary control. You need to be more strategic. CFOs should lead the effort in establishing financial analytics at a business. They are the most logical choice to manage the analytics to serve the company’s needs. Most CFOs are already using financial analytics. They use it to evaluate what areas of the business are strong and what areas need improvement. They are the ones that collect data from operations, supply chains, production processes and other areas. 4 Reasons to Own Financial Analytics Financial Analytics Empower CFOs Using financial analytics empowers CFOs to conduct a more centralized control of operational decision-making. Deloitte CEO and former CFO, Frank Friedman, said in CFO Magazine, “As profit can fall between the operational cracks, analytics can be a game changer by leading to improved operational discipline.” Financial analytics produces insights that demystify some of the accepted wisdom that resides within the business As the CFO, you are already a very respected leader within the company. And, now when you challenge results, you will have solid data to convince co-workers you are right. Expand your strategic leadership role in: Growing the top line Expanding your influence outside your primary financial role Strengthening your ties through the...
by Amanda King | Resources
Why You Should Replace Excel with a Dedicated Budgeting, Planning and Forecasting Solution Many businesses are making the switch from Microsoft Excel to a dedicated budget, planning and forecasting (BP&F) software program. BP&F is a three-step process for determining a company’s short- and long-term financial goals. Businesses are in need of these modern systems to help them turn data into business insight. Budgeting, planning and forecasting software also offers analytics and reporting. The Benefits of Budgeting, Planning and Forecasting Software Finance managers, business advisors, CFOs or business owners can create more accurate budgets and analyze what-if scenarios using budgeting, planning and forecasting software. Excel spreadsheets pose challenges to businesses in the realms of security, control, consolidation, workflow and automation. Here are the benefits of using forecasting, budgeting and planning software: Automates your annual budgeting process. Consolidates and centralizes a business’s financial information. Plan a company’s financial direction for the next three to five years. Document how this overall plan will be followed through month-to-month and specify expenditures. Forecast finances using past company data to predict financial outcomes for the future. Consistency across reports. 5 Signs That You Need Budgeting, Planning and Forecasting Software You do more work than you should When you need to do more work than you should to validate data analysis, it’s time to switch to a dedicated budgeting, planning and forecasting tool. “When the design, logic and algorithms in an Excel spreadsheet need to be independently reviewed for accuracy using the same testing and validation processes used in software development, that’s a good indication it’s time to question whether the Excel approach is still valid,...
by Amanda King | Business Coaches, Business Owners, Certified Public Accountants, Resources
Key Financial Ratios Help Manage Your Business Your attention is usually focused on a key area within your company. Maybe that’s in marketing, sales or technology. Handling the financials may not be your forte. But, it’s important to be able to analyze your company using business profitability ratios. Financial ratios are used as indicators that allow you to zero in on areas of your business that may need attention, such as liquidity, profitability, operational efficiency, and solvency. Financial ratios are also useful tools in forecasting and financial analysis. They allow you to set specific goals and track your business’s progress toward these goals. It’s important to choose financial ratios that apply to your business. There are hundreds of financial ratios out there and while some of them apply to all businesses – there are some specific financial ratios by industry. Here are the top five most powerful and widely known financial ratios you should use in order to make your business succeed: 1. Net Profit Margin This ratio is the most important measurement. With this ratio, you can understand how each dollar earned by your company is translated into profits. How to Compute Profit Margin Ratio: Net Profit / Net Sales It indicates how efficient your company is at its cost control. For example, a higher Net Profit Margin means the business converts its revenue into actual profit more effectively. You can use this ratio to compare yourself to your industry peers, as well. 2. Current Ratio This ratio is a performance measurement of a company’s liquidity. The measurement determines if your business has enough resources to pay its debts...
by Amanda King | Financial Institutions, Resources
Improved Relationships = More Money As a financial lending institution, you need to be able to balance risk and relationships. Beyond balancing, you need to build stronger relationships between you and your commercial customers. Improving your relationship banking can ultimately increase revenue for your lending institution. Relationship Banking Relationship banking is when financial institutions use their personal knowledge of the borrower over time to overcome roadblocks. This personalized decision-making gives the loan approval process more flexibility. Reasons to Improve Your Relationship Banking By taking the time to build relationships with your clients, relationship banking increases revenue for lending institutions. It increases the likelihood that the borrower would return to your institution for future loans. That means there could even be more referral business. Customers like personalized service (who doesn’t love some individualized catering?). So when you build a personalized relationship with each and every one of your customers, that gives your financial institution an edge over the larger institutions who don’t have the same proximity to the community and have a larger customer base. And, long-lasting connections with your customers allows you to stand out against competing lenders who are all vying for the same business. On the other side of lending, your borrower benefits, too. They don’t need as many collateral requirements over time. That personalized service goes a long way in increasing the likelihood of loan approval and the longer your relationship lasts with the client – there’s more understanding of their needs. It’s also important to keep in mind that there would be increased credit availability the longer the relationship endures. How to Improve Your Customer...
by Amanda King | Business Coaches, Business Owners, Resources
How Financial Analysis Can Fuel Your Tactical Execution for Growth Successful business owners consistently evaluate the performance of his or her company and compare it to industry peers and competitors. But, whether you’re a business owner or an advisor, reading between the lines of financial statements is essential for the company’s tactical execution for growth. Analyze Financial Ratios Financial ratios are important financial analysis tools that can you help you implement action plans for profitability, leverage, liquidity and more. This is a traditional financial statement analysis tool. While ratios mostly report on a business’s past performance, they also act as a strategic predictor tool that pinpoints a business’s weak areas. Then, the owner can start improving this area in order to optimize growth. This gives you a 360-degree view of your business allowing you to look at past and present performance as well as financial projection for the future. Horizontal Analysis You can analyze financial ratios during your current financial period compared to the past year of your company’s financials. This is known as a horizontal analysis. The number of years you can compare financial statements will rely on the financial analysis software you are using. For instance, IndustriusCFO allows you to compare up to four years of financial statements (if you have four years’ worth of statements). This comparison will allow you to identify good and bad trends and adjust your business practices accordingly. When you compare your company’s financials to another company’s financials, you can see exactly how your ratios stack up against each other. However, if you’re analyzing a startup’s financials, you wouldn’t be able to...
