The Importance of Financial Analysis for Business Success
When I think about a business's success, financial analysis immediately comes to mind. How are business owners reviewing their financials? Are they using an accounting system or relying on Excel worksheets? It's crucial for small business owners to understand the significance of performing financial analysis. To grasp the monthly activities of their business, owners should be familiar with the following aspects of financial statement analysis: Key Elements of Financial Statement Analysis
The Power of Financial Statement Analysis Financial statement analysis is an exceptionally powerful tool for various users, each with different objectives in understanding the financial circumstances of a business. Users of Financial Statement Analysis
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For many small business owners, extending credit to customers seems like a no-brainer since it can be a great way to attract customers and build profitable long-term relationships with them. Credit is convenient and will probably win customers, but sales revenue will be delayed for either the discount period or the credit period, or perhaps longer if the customer is late in making the payment. Business owners and those responsible for the day to day task should understand that the analysis of receivables method is based on the assumption that the longer an account receivable is outstanding, the less likely that it will be collected. Accounts receivable constitute the primary source of incoming cash flow for most businesses, so you should analyze these invoices in aggregate to ascertain the health of the underlying cash flows. The analysis of receivable method is applies as follows: Step 1: The due date of each account receivable is determined Step 2: The number of days each account is past due is determined. This is the number of days between the due date of the account and the date of the analysis. Step 3: Each account is placed in an aged class according to its days past due which is typically aged as follows:
Step 5: The total for each aged class is multiplied by an estimated percentage of uncollectible accounts for that class Step 6: The estimated total of uncollectible accounts is determined as the sum of the uncollectible accounts for each ages class. The preceding steps include summarizing an aging schedule and this overall process is called aging the receivables. An example of a business’s aging report is provided below. A detailed process such as accounts receivable should be an extensive documented process for any business. This process will ensure cash flow is managed appropriately by those responsible. Fontenot & Associates Solutions LLC can support with the development and analytical process of the monthly accounts receivable, we are just a click away.
Cash doesn’t always flow how you need it to. It can start from customers who pay late to suppliers who have suffered some setbacks. Building a cushion in your bank account isn't a complicated concept; instead of having just enough to pay bills and staff, it is time to have a more significant amount in the account. An amount that will not only allow for timely payments of monthly billings but enough to transfer into savings. Maintaining a smooth cash flow requires juggling many aspects of the business, such as staying on top of “pending cash,” also known as accounts receivable.
Cash flow is the life of an organization; it’s a means to pay salaries, buy supplies and make stock investments. As the statistics have shown, owners who cannot efficiently manage their business cash flow are almost certain to fail. To improve cash flow and sustain growth, it will be important to build a cash cushion. Cash reserves enable companies to cope with business disruption, deal with seasonality, and manage slow-paying customers. In addition, it allows a business to take advantage of new opportunities should they arise, and plan for future growth by having investment capital available. Here are just a few tips on how business owners can boost their cash flow:
The efforts to implement meaningful business changes will be a combination of lessons learned. Building and keeping an adequate accumulation of cash provides maximum opportunity and flexibility to any business. Fontenot & Associates Solutions, LLC recommends identifying the method or strategies which work for your business culture. Building a stable long-term business means having sufficient liquidity and a developed and executed form of policy and procedures with clarity defined goals. Are you a small business planning to offer benefits to your current staff or new employees? Since small businesses often don’t have big budgets to compete with bigger companies on salary, offering employee perks is one way to help bridge the gap, boost morale and improve employee retention rates.
Many experts and entrepreneurs have identified some of the best perks that small businesses can offer employees.
The world of filming offers a dream career for many people. Film production is one of the few nationally subsidized media businesses in the United States. As a business owner, how are you planning for company success? And as an entrepreneur how will your business services be unique to the industry? Planning for success in any industry starts with a business plan that includes short-term and long-term goals. To start a film in production company you will need to incorporate or become an LLC. Once you have incorporated you will need to come up with a script, either by writing it or finding one you want to produce. Some states offer grants for filming in their areas, but grants will not keep your business moving so you must consider other options for funding. Topics such as funding should be outlined in detail within your business plan. When developing a business plan be prepared to incorporate the expected challenges the industry may bring such as taxation, hiring staff and making the proper connections. Will you bring a partner onboard and if so at what phase of the business? How will you and the business partner mingle funds into the business. These are questions I encourage you as an entrepreneur to consider before the days turn into months and the months turn into years. The Houston Chronicle published a great article about getting started, check it out. Below are additional links to use in learning more about the industry: Fontenot & Associates Solutions LLC can support your start-up budget plan or business plan.
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AuthorMy mission is to offer the best accounting and operations solutions and tips for entrepreneurs and small to mid-size companies worldwide seeking to close their process gaps with actual solutions. |