Understanding and analyzing financial statements can be fun – they are your scorecard. They tell you how healthy your business is. Here are five fun financial facts:
- Balance sheets tell you the true profitability of your business.
Profit and loss statements tell you profit or loss for a specific period of time. Then they start over – ever had a bad month and think “I’m glad that month is over?” You get to start again and do better the next month.
Balance sheets begin the day you start or buy your company and end the day you sell your company or close the doors. They tell you whether your company is becoming more or less profitable. How? Through the profitability trends when you calculate the current ratio (current assets divided by current liabilities) and working capital (current assets minus current liabilities).
- Cash may be “King and Queen”. But, profitability is more important for continuous cash.
You need profitable revenue which, when collected, turns into positive cashflow, which turns into cash. Make sure that you save at least 1% of all revenues that comes in the door. It’s easy to do. Attach a savings account to your operating account. Each week transfer 1% of the collected monies into the savings account.
- You can be profitable and go bankrupt.
Not paying attention to collecting your accounts receivable as you grow could grow you out of business because you can’t pay your bills. Or, not saving enough cash can do this too – you need protection. True story: Three of a contractor’s major customers went bankrupt in a month and $1 million in receivables became uncollectable.
- For contractors, maximizing profitable billable hours is a key to success.
If you are a contractor, you generate revenue through billable hours. No billable hours means no service revenue, no replacement revenue, no project revenue, etc. How many hours are you paying for each week? How many of them are billable?
Then make sure those hours are producing profitable work. It is very dangerous to have 40 billable hours and the company is losing a dollar for each billable hour. You will go out of business faster.
- You can be your own chief financial officer – in less than 5 minutes a month.
It’s like learning to ride a bicycle – tough in the beginning but it becomes reflexive. You can see how easy it is to analyze your financial statements in less than 5 minutes a month – know how your business is trending – spot impending issue and resolve them before they become major crises.
In less than a minute you can get the meaning of what your financial statements are telling you. Go to www.financiallyfit.business to find out how.
Here is my holiday present to you:
Try Financially Fit Business. Put your financial statements in and see what they are telling you. We’ll take you through the process and review them with you on a Zoom call. Your investment? Only $299 for entering up to two years of financial statements and the review.
Schedule a time to get it done, see the financial health of your company, and start the new year avoiding a little cut (takes less than an hour): www.calendly.com/rking-5
It might be the best investment you make all year.
Happy New Year!
Thanks again for reading Financially Fit Business. I appreciate you!
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