Want to know some of the most important insights that can be found in your business’ financial statements?
If you’re not actively assessing your business’ financial statements at least once a month, you’re going to run into some trouble.
I say this because when I was 26 years old, running my first company, I had no idea what I was doing.
I didn’t know how to properly handle my cash flow, effectively raise capital, or how to hire.
How one hire affected my financials
As the story goes, I went to hire a CFO for this one company of mine. I just assumed he knew how to do his job — ’cause I sure didn’t. It’s why I hired him.
Unfortunately, while we were billing, we weren’t receiving. And that’s when I started to face trouble.
Fast forward a few years down the road and I’ve learned from my mistakes. I’ve recorded my failures and my successes. And I was able to effectively repeat what got me here and avoid what set me back.
The biggest lesson I learned is that as a business owner, you need to look at your financials. You need to pay close attention to the money that’s going in, out, and billing amounts.
By looking at these insights, you’re able to effectively measure your success and plan for the years ahead.
3 massive insights into financial statements for business
1Receivables
This one’s a given. However, you should 100% be looking at what you’re making. Not just in revenue, but in profit.
You want to ensure that your accounting team, bookkeeper, or controller know what they’re doing — and are doing it diligently.
If you or your team aren’t tracking your receivables, how do you know where you measure up against your benchmark years? How do you even begin to understand where you can go and what you have to do to get there?
2Expenses
Tracking your expenses is just as important, because it shows you what’s going out of the business.
It shows you what you’re spending on and how frequently it comes out of your account. Additionally, it shows you what your vendors charge you, what gets billed to your company, and even how much gets paid out to your team.
Looking at your expenses allows you to get a better understanding of where the money goes and how you spend it within the business.
3Revenue Target Per Employee
Last, but certainly not least, tracking your revenue target per head is essential to the growth of your business.
I say this because it’s the single most important metric that I use to measure company success.
After surveying, researching, and reverse engineering hundreds of businesses across different industries, I’ve found that there is a single commonality between all of them, and it’s the employee revenue per head.
On average, companies operating between $250K-$500K of revenue per employee are seeing profits larger than 18% in their companies.
Anything below that… well, they’re either leaving money on the table, or they’re destined to fail.
All in all, tracking your financials is the key to understanding your business better. It’s the key to giving you the tools and insight you need to make better decisions and properly plan for expansion.
Want to learn where you stand on the revenue target per head? To find out whether you’re operating above or below the operating waterline, take the Employee Profit Calculator quiz.
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I am incessantly thought about this, thanks for posting.