Telling a Story with Numbers

For a business, numbers and statistics let us make comparisons. They tell us how well the business is doing, they allow us to track year to year progress, and they give comparisons to the competition. They also allow us to ignite our financial growth within our businesses by being knowledgeable about where the business is going. Because of this, every entrepreneur should be tracking their business’s income, expenses, assets, and liabilities on a day-to-day basis. With these numbers, ratios can also be made to determine different things about your business. The ratios can then provide guidance on the next step for you financially. So, here are three financial ratios entrepreneurs should monitor:

 

1.Profit Margin Ratio – To find the profit margin ratio, you simply divide your net income from your gross revenue.

What this number tells us is the percent of your sales that you turn into profit. A million dollars in gross revenue may sound like a lot, but if you are only turning $10,000 of that into profit, it is a lot of work for very little reward.

By consistently tracking your profit margin ratio you can see how efficiently your business is turning revenues into profits and how it compares to your competition. The higher the profit margin, the bigger your blaze will get and the bigger your business will grow.

 

2.Quick Ratio – Your quick ratio is your cash and your accounts receivable (how much customers owe you) divided by your current liabilities (debts you owe that are due in one year or less).

What this ratio will tell you is your ability to fund your day-to-day operations. Ideally, this number will be at one or higher – meaning your liquid assets are at least as much as your short-term liabilities. A number lower than one could indicate you are heading down a dangerous path with your business.

 

3.Company Equity – To find the equity in your company (its net worth), you have to subtract all of your liabilities from all of your assets.

The equity will tell exactly what your company is worth. Think of it like your house. The value of your house is how much it’s worth minus how much you owe. Same thing with your business.  The value of your assets minus what you owe in debts is what the company is worth. As you continue to grow your business, your equity will increase.

 

 

By staying organized during the year, not only will you help protect yourself in case of an audit, but you will also be in a much better position to analyze where your business is. That way you can be in a great place to ignite your business to grow.

All of this financial terminology can be overwhelming and confusing. Let us take away that confusion and stress. Check out more of our website to see our packages and reviews. By taking advantage of our Free Financial Review, you can chat with us about the areas of your business you need help with.

 

Schedule an Exploration Call