The mimosaPLANET Small Business Blog covers all areas of small business advice and small business development:
You might have heard of a “balanced scorecard” before, but what about a Financial Ratios Scorecard for Small Businesses? Being a small business owner can be tough; just keeping on top of the regular day to day activities involved with running and operating your business can be challenge enough. But when it comes to actually taking some time to review your financial results, make sense of the numbers and then make quality decisions so you can take proactive steps to improve your situation, anything you can do to help you is very valuable. Do you have a financial ratios scorecard helping you analyze your business’s financial performance and position?
Making better business decisions should be right at the top of your list of priorities. Why? Well, better decisions regularly lead to better results – and as a small business owner I’m sure you want to get better business results, right? To make better decisions you first need to understand your business's financial statements and learn to calculate financial ratios.
For many in small businesses the Statement of Financial Position (widely known as the Balance Sheet), one of the four Financial Statements, is something that they pay little attention to, mainly because of a lack of understanding of what it all means. Well, to begin with it doesn’t have to be complex. Let’s look at the key points to understanding your Statement of Financial Position / Balance Sheet.
Make your Income Statement (Profit & Loss Statement) more valuable! This is simple, logical and direct advice that any business owner should listen to. However, ‘how to’ achieve this is perceived by many in small business as anything but simple. In fact, this is not for the most part even true, most people don’t even consider that their Income Statement can or should be more valuable or how this could be beneficial, let alone ‘how to’ achieve improvement. It doesn’t have to be so challenging or confusing, and ignorance is costly.
Allocating a purchase of some sort (which is a cost to your business) to the correct area of your Income Statement is very important. Get this wrong and you will be calculating an incorrect GPM%, and potentially making some very bad decisions based on the poor information you have.
The headline act of the four key financial statements has to be the Income Statement, also known as the Profit & Loss or Statement of Financial Performance. Put simply, it tells you how well your business is performing. But just because it is important doesn’t mean anyone has ever explained to you what the basic parts are and why some key data is include in one section and not another, or even how to read them so that you can make better decisions to help improve your business. There are lots of separate articles to write on this topic but let’s consider the basic points first;
Understanding financial statements is a necessary skill all small business owners need to have. You must know; 1) What the numbers mean on the page, 2) How to calculate further ratios from the raw data, and 3) what to do to affect your results in the future. Let’s look at the basics;
Having Recording and Reporting systems in place can be the difference between average results and achieving success. Small business owners around the world have been told for years “you can’t manage what you don’t measure”. The great news is you can easily measure (record) the main variables involved in business growth / development (marketing & sales), we’ll call this “data”.
Financial reports, sales reports, marketing reports…. never a sexy topic. Nevertheless, if you’re after marketing improvements for your small business, regular reporting and reviews are vital. You really need a set of powerful data dropped on your desk each month. A quick review will tell you what is going on in your business. You can then make better decisions with the aim of producing better results. Without marketing reports it can be slow and painful process towards performance improvement. So, what information should you review?
How to increase your marketing ROI by recording and reporting on quality information. Then selecting the best small business marketing techniques...
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