10 Financial Yardsticks for your Business

Do you ever get to the end of the day and wonder where the money is?  Business is good.  According to your accountant, you’re making a profit.  But, when you go to pay the bills, there’s not enough money in the bank to go around.

Joseph Anthony writes for Microsoft Office Live on 10 Financial Yardsticks for Your Business.  Cash flow is the name of the game, and sometimes we just don’t take the time to analyze this all-important measure.  The article is geared toward manufacturing, but the lessons apply to any type of business.  Anthony suggests that you get the answers to the following 10 questions:

1. What are your assets?  It’s especially important to keep track of changes in the value of your assets.  Most things will decline in value, but some things, like real estate, may increase.

2.  What are your liabilities?  It’s not yours if you owe it to someone else.

3.  What’s it costing you to produce (or acquire) what you sell?

4.  What’s it costing you to sell what you sell?  This one may be a little more difficult, but you’d better know the answer.

5.  What’s your gross profit.  We discussed this in an earlier post on pricing.

6.  What’s your debt-to-asset ratio?  How much of what you "own" is actually owned by someone else?

7.  What’s the value of your accounts receivable?  Like total assets, it’s important to know if this is going up or down.

8.  What’s your average collection time on accounts receivable?  Are you acting as a banker for your customers?  If so, how long is it taking you to get your money?

9.  What are your accounts payable?  Are you taking longer to pay because you want to or because you have to?

10.  What’s happening with your inventory?  Again, is it going up?  If so, is it because you’re making an intentional investment in more goods, or are there other reasons?

It’s important that you be able to answer these ten questions.  Big companies always have this information available to them.  You should too.  If you don’t, your accountant should be able to help you, or there’s software available that will make the calculations for you.  (Remember, the article is from Microsoft.)

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