finance – New Economy CPA

Tag Archive for: finance

Leading with Curiosity

There’s a reason the wisdom of Socrates carries on today. He’s famous for asking questions. It’s a method that can help you reach useful insights.

A toga is not required, but certainly, a fun addition if you want to really get into it! 😉

Anyways.

Consider employing the “5 Whys” Method, which is popular among lean startups.

Whenever you think you have an answer to the below questions, try asking “Why?” again and again. You may discover some interesting root causes, causality, and insights.

Always pursue this approach without judgment. Even if it’s tempting to do so, the goal is insights and not blame.

5 Whys Example

The “why” to many of these could have many answers taking you in different directions to explore, but here’s a simple example with one answer and follow-up question for each.

Why aren’t we profitable yet?

Our revenues aren’t exceeding our expenses.

Why aren’t our revenues exceeding our expenses?

Our expenses are reasonable, so it must be that we need to work on our revenue model.

Why isn’t our revenue model working?

We’re not sure, perhaps there’s some more research that needs to be done here. However, it’s based on assumptions from two years ago when we started, and we’ve learned a lot since then which could be updated.

Why haven’t we updated our revenue model?

We get caught up in the hustle and bustle of daily business.

Why are we too caught up in the hustle and bustle of daily business?

We haven’t created a process that includes scheduled time and accountability for strategic thinking and updates.

Okay, here are some good questions to get the curiosity going!

Question 1: How’s My Cash Flow?

Cash flow is the lifeblood that keeps everything running smoothly.

Unlike profit, which is a measure of your earnings over time, cash flow is the actual money flowing in and out of your business right now. If you’re not paying close attention to your cash flow, you could be headed for trouble, even if your business is profitable on paper.

Signs that your cash flow might be struggling include:

Late payments from customers
Overstocked inventory
Unexpected expenses

To keep your cash flow healthy, make sure you’re invoicing promptly, negotiating favorable payment terms with suppliers, and keeping a close eye on your expenses.

Question 2: Am I Profitable? (And If Not, Why?)

This seems like common sense, but it’s key.

While cash flow is essential for short-term survival, profitability is the key to long-term sustainability. It’s the difference between making money and just breaking even.

To figure out if you’re profitable, take a close look at your revenue and your expenses.

Are you pricing your products or services correctly?
Are your costs under control?
Is your sales volume high enough?

Answering these questions and keeping an eye on your budget can help you pinpoint areas where you can improve your profitability.

Question 3: How’s My Debt Situation?

Not all debt is created equal. Some debt, like a loan used to purchase equipment or expand your business, can be a good thing. In fact, we recently wrote an article which will help you get a bank loan for your business.

However, too much debt can weigh your business down with interest payments and limit your cash flow.

If you’re carrying a lot of debt, consider strategies like consolidation or refinancing to reduce your interest rates and monthly payments.

Question 4: Am I Saving Enough?

Even if your business is doing well right now, it’s important to prepare for the unexpected. A rainy day fund can help you weather tough times, like a sudden economic downturn or an unexpected expense.

It can also give you the flexibility to take advantage of new opportunities, like expanding your business or investing in new technology.

Make sure you’re setting aside a portion of your profits each month to build up your savings.

Question 5: What Does My Future Look Like?

Having a clear vision for your business’s future is essential for making smart decisions today. Financial forecasting can help you anticipate potential challenges and opportunities down the road.

By using tools like financial modeling software or seeking the help of a professional advisor, you can develop a roadmap for your business’s financial future.

This can help you make informed decisions about everything from hiring new employees to expanding into new markets.

3 Key Takeaways:

At New Economy, we’re always asking questions and coming up with helpful solutions. We want to help you flourish by taking control of your finances. Here are 3 key takeaways:

Stay Curious: Instead of making assumptions and judgements, keep an open mind and question the world around you.
Keep Asking Why: Go deeper and deeper to see if you can find and solve root causes.
Plan Ahead: Use questions and forecasting to make informed decisions about your business’s future.

Remember, asking the right questions is the first step to taking control of your business’s financial health.

Don’t be afraid to seek help from a financial professional if you need it. By staying informed and proactive, you can set your business up for long-term success.

New Economy Team Members are Experts in Accounting for Entrepreneurs

If you need help asking the right questions, getting your finances organized, and decreasing your taxes, New Economy is an excellent partner.

We’ll help you get your accounting and taxes done, and done right.

Schedule a time to meet with our Founder, Jeff, and discuss how we can add value to your situation.

3 Ways to Use Your Financials to Make More Money

May 28, 2024/in Entrepreneur, Finance/by Jeff Allain

You’ve got a good feeling about a new idea, but is it the right investment?

Where can you tighten the belt without sacrificing quality?

Sales are steady, but you know your business can do more.

These types of scenarios keep many entrepreneurs up at night, but the answers are within your grasp.

Your financial data is a treasure trove of insights, just waiting to be used to make more money.

Ahoy, mateys!

In this article, we’ll explore three strategies to transform your finances into some well-deserved bounty for your business.

Strategy 1: Uncover Untapped Revenue Opportunities
Strategy 2: Turn Forecasts Into Cash Flow
Strategy 3: Reduce Waste and Streamline Operations

Let’s dive in!

Strategy 1: Uncover Untapped Revenue Opportunities

Your financials are a compass for your business, guiding you toward untapped profits. They can reveal hidden gems within your existing operations.

Even small tweaks can result in significant gains. Here are some examples where financials can become your trusty first mate in finding hidden riches:

Shine a light on underperforming products

Sales data can expose product or service lines quietly dragging down your overall profitability.

Is a specific offering consistently failing to meet sales targets?

Maybe it’s time to re-evaluate its pricing strategy or consider phasing it out to focus on more promising ventures.

Optimize your pricing

Financial data can help you understand customer behavior and price sensitivity.

Are you leaving money on the table by undervaluing your products?

Or are you potentially driving your target customers away with higher prices?

Your financial data can help reveal the sweet spot – the price point that maximizes both sales volume and profit margins.

Negotiate like a pro

Financial data empowers you to become a stronger negotiator with vendors and suppliers.

By understanding your cost structure and past purchase history, you can confidently negotiate better deals, squeezing unnecessary expenses and boosting your bottom line.

Strategy 2: Turn Forecasts Into Cash Flow

Using your financials to create forecasts helps you prepare for stormy seas.

If you’re only working with a budget so far, fear not! You can easily use budgets as a base for your forecast.

You can also learn more about creating and following a cash forecasting model in this article, where we’ve swapped the pirate analogies for Star Wars, if that’s more your speed.

But forecasting is only half the battle. You must then adjust your sails accordingly, or the effort will be wasted.

Here are some examples:

Your forecast predicts a surge in sales during the holiday season.

Instead of investing in a new marketing campaign right now, focus on optimizing your inventory management and staffing levels.

This will ensure you have enough supplies and crew on board to handle the influx of customers and avoid stockouts, which can leave money on the table.

Your forecast predicts a surge in demand for a specific product line.

Reallocate resources from underperforming areas to invest in marketing and production.

This hidden gem may soon become your most profitable product line.

Your forecast predicts an economic downturn in the coming months.

Instead of launching a new product line that requires a significant upfront investment, you can focus on tightening your budget.

Renegotiate contracts with suppliers, or offer discounts to boost sales and maintain cash flow during the rough weather.

At New Economy, we re-forecast our financials weekly! It’s a simple process that takes about 15 minutes, where all department leaders discuss and revise based on any material changes we’ve noticed.

Strategy 3: Reduce Waste and Streamline Operations – Plugging the Leaks in Your Ship

Any captain worth their salt knows even the sturdiest ship can sink from a tiny leak.

Inefficiencies and waste within your business can be pesky leaks, slowly draining your profits.

But fear not, matey!

Financials help you identify and patch those leaks before they become a major catastrophe.

Every penny saved is a penny earned, and financial data empowers you to become a swashbuckling cost-cutter.

By analyzing your financial statements, you can pinpoint areas where expenses can be minimized or eliminated, ensuring your treasure chest remains overflowing.

Chart a course for lean operations: Financial data can reveal areas of unnecessary overhead costs. By analyzing expenses, you can identify potential areas for streamlining operations, such as eliminating redundant subscriptions or renegotiating service contracts.
Mind yer inventory! Inefficient inventory management can lead to overstocking, which ties up your valuable resources. Financials can help optimize your inventory levels, ensuring you have enough supplies on board to meet customer demand without unnecessary stockpiling.
Embrace the power of automation: Financial data can highlight repetitive tasks that are ripe for automation, causing a drain on your team’s time and energy. Freeing up your crew allows them to focus on higher-value activities.

3 Key Takeaways

At New Economy, we help you use financials to make more money and better business decisions.

Here are 3 key takeaways.

Unearth Hidden Profits: Financial data is your treasure map, guiding you towards hidden opportunities within your business. By analyzing key metrics like sales data, cost structures, and customer behavior, you can identify areas for increased profitability.
Chart Course with Forecasts: Financial data empowers you to create forecasts, acting as your compass in uncharted waters. These forecasts help you regularly adjust your sails for stormy seas or fairer weather.
Plug the Leaks: Analyze financial statements to pinpoint areas of inefficiency and waste, like unnecessary overhead costs or bloated inventory levels. Every penny saved is a penny earned!

There you have it 🙂

New Economy Team Members are Experts in Accounting for Entrepreneurs

If identifying ways to decrease your taxes is not in your skill set or you want to gain control of your finances to make smart decisions to build and grow your business, New Economy is an excellent partner.

We’ll help you get your accounting and taxes done, and done right.

Schedule a time to meet with our Founder, Jeff, and discuss how we can keep your treasure chests overflowing!

3 Reasons Every Business Needs Timely and Accurate Financial Data

May 15, 2024/in Entrepreneur, Finance/by Jeff Allain

Your business is ready to grow.

The team thinks you’re just one marketing campaign away from surpassing your goals this year.

But can you do it?

How much can you realistically invest in this campaign without jeopardizing other areas of your business?

At New Economy, we use financial data to make nearly every decision.

It’s guided us to the growth we are seeing today.

So, it’s said with confidence and experience when we say:

Without timely and accurate financial data, you can’t answer your business’s most pressing questions.

Of course, intuition has its place.

But fuel your gut with delicious data to ensure your decisions have a foundation for success.

Timely and accurate financial information is the cornerstone of smart business decisions, big or small.

In this article, we’ll explore the reasons why every business, regardless of size or industry, needs up-to-date and reliable financial data to thrive.

Reason #1: Make informed decisions with confidence.

Reason #2: Navigate challenges and opportunities effectively.

Reason #3: Gain a competitive edge and secure funding.

Before we jump in, ask yourself these reflection questions:

Do you feel confident making strategic decisions based on your current financial information?
Are you prepared to react quickly and effectively if a sudden market shift impacts your business?
Have you ever missed out on a potential business opportunity because you lacked clear financial insights?
If you were to seek funding for your business today, are you confident your financial information accurately reflects its true potential?

Ready?

Reason 1: Make Informed Decisions with Confidence

Do you ever feel like you’re navigating your finances in the dark?

At New Economy, we understand how a lack of direction can keep an entrepreneur up at night.

But think of financial data as a compass – guiding your decisions and keeping you headed toward success.

With timely access to your financial information, you can:

Track progress towards goals by measuring how your current performance compares to your budget and identify areas exceeding or falling short of expectations.
Identify areas for improvement by analyzing trends in sales, expenses, and profitability.
Make data-driven decisions instead of relying on guesswork.

Let’s revisit the marketing campaign from the beginning of this article.

By analyzing past marketing data, you can see which strategies brought the best return on investment (ROI).

This allows you to allocate your budget more effectively for the upcoming campaign, maximizing your chances of success

Here are some more ways to use financial data to boost your confidence as a business owner.

Reason 2: Navigate Challenges and Opportunities Proactively

We all know to expect the unexpected as entrepreneurs!

Whether it’s a global pandemic, supply chain disruptions, or a strangely eventful pop culture event…

there’s no crystal ball to prepare us for the future.

But, smart businesses can still be reasonably prepared for the future with timely and accurate financial data.

It lets you pivot at a moment’s notice.

You can mitigate potential damage or explore a new opportunity with the click of a button if you’ve got the right data on your dashboard.

Here’s how:

By analyzing trends and historical data, you can identify potential financial risks and develop contingency plans to mitigate their impact.
Having a clear picture of your current financial situation allows you to react quickly to unexpected events and adapt your strategies accordingly.
Timely financial data can reveal new market trends or opportunities you might otherwise miss. This allows you to capitalize on these opportunities and stay ahead of the competition.

Now, back to the marketing campaign.

Your sales data starts showing a decline in a specific product category just before launch.

You realize it’s showing a shift in a market trend.

Thanks to the early warning, you can do some research to identify the causes.

Then you can adjust your campaign messaging or even pivot your marketing strategy to target a different product line that’s experiencing higher demand.

Reason 3: Gain a Competitive Edge and Secure Funding

Financial health is a top priority for investors and creditors.

Regardless of the type of funding you seek, your financial health will be reviewed thoroughly before getting anywhere near the purse strings.

Timely and accurate financial data can be a key indicator of your business’s growth potential and ability to repay loans.

Here’s why:

Up-to-date financial statements give a clear picture of your company’s financial performance, profitability, and debt levels. This builds trust with investors.
Financial data can be used to create forecasts and projections for future growth. This allows you to showcase your company’s potential to generate strong returns for investors.
Your funders love when you can answer questions with accurate financial data that was generated recently, instead of bumbling about how they’ll need to wait a few weeks for you to get the data to answer their questions.
A solid understanding of your financial position empowers you to negotiate more favorable terms with lenders and suppliers.

Beyond attracting funding, reliable financial data also helps you stay competitive:

Set competitive prices while maintaining healthy profit margins by analyzing your cost structure and customer behavior.
Identify areas where you can streamline operations and reduce unnecessary expenses.
Gain a clear financial picture to make informed decisions about resource allocation, investments, business expansion, and more.

Let’s come back to our marketing campaign.

You’ve crunched the numbers and decided you just can’t risk dipping into your business savings to launch a massive marketing campaign.

The team decides taking out a short-term, low-interest loan could maximize your outcomes and minimize your risk.

By demonstrating your financial stability and growth potential with accurate data, you’re in a much stronger position to secure funding for the campaign.

When you share how you made your decision to pivot the focus of your marketing campaign based on the most recent data, your funder feels more confident you’re making decisions based on real-world data.

3 Key Takeaways

At New Economy, we want to help you gain control of your finances to make smart decisions.

Part of that is understanding your finances and how to drive business performance.

Here are 3 key takeaways.

Make informed decisions with confidence. Timely and accurate data means you have a more complete picture of your business.
Be prepared for challenges and opportunities. Being able to see your financial records quickly means you can change direction when the time is right.
Secure funding and gain a competitive edge. Showcase your company’s financial position with ease, preparing you for investment, loans, and the ability to gain a competitive advantage.

There you have it 🙂

New Economy Team Members are Experts in Accounting for Entrepreneurs

If collecting timely and accurate data is not in your skill set or you want to gain control of your finances to make smart decisions to build and grow your business, New Economy is an excellent partner.

We’ll help you get your accounting done, and done right.

Schedule a time to meet with our Founder, Jeff, and discuss how we can add value to your situation.

5 Ways to Understand Your Financial Statements and Get Closer to Your Goals

February 6, 2024/in Finance/by Jeff Allain

Having financial statements is important.

Really important.

Think about the dashboard in your car. You have many gauges and lights that tell you different things going on in your car.

For instance, you have a gas light. If the gas light is on, it’s a warning that you need to fill up your gas tank. If you avoid this you may get stuck and you may not make it to your intended destination.

Or you have an oil light. If this is on and you don’t put oil in your engine, your engine could potentially seize you and you will have a major problem.

This is all good information to have. This information allows you to make good decisions for your vehicle, your primary need for transportation which is very important.

Financial statements are much like the gauges on the dashboard of your vehicle.

They give you information about the financial condition of your business.

We run into many entrepreneurs who don’t know how to use this important information, and that’s ok, they are entrepreneurs and should be casting vision and building stuff.

However, they should still have a high level of knowledge on how to use financial information to help them get closer to their goals.

In this article, you will learn about:

The three standard financial statements
5 ways to understand your financial statements
Top 3 Takeaways

Let’s dive in.

The three standard financial statements

Pop quiz.

Do you know the three standard financial statements that you should be using to assess the financial condition of your business?

If not, we got you.

They are:

The Balance Sheet
The Profit and Loss Statement
The Statement of Cash Flows

Balance Sheet

Your balance sheet is a statement that will help you to understand the financial condition of the Company.

We all want to know how our business is doing, don’t we?

It shows all of your assets, liabilities, and equity in the business.

Your assets are things like cash, accounts receivable, and fixed assets. They are used to help your business produce future value.

Your liabilities are amounts you owe to third parties in the form of accounts payable. Liabilities can be good if used properly. They allow you to “borrow” as you typically have 30 days to pay the third party.

Long-term bank debt is another form of liability. This can be used for timing issues like making purchases up front that will produce value down the road and allow us to repay the debt.

Lastly, your equity is all of the capital contributed to the business as well as profits and losses accumulated.

Profit and Loss Statement

Your profit and loss statement will help you understand if the core product or service you are delivering is producing a profit.

It is divided into a few sections as follows.

First, you have your revenue and cogs. Your revenue is straightforward and represents your earnings for doing what you do. Your cogs, or cost of goods sold, is variable with your revenue. Meaning if your revenue goes up, it’s likely the costs to produce the revenue go up. The key here is the gross profit.

Next, you move into operating expenses. These are typically fixed expenses and things like rent, marketing, software, and salary expenses.

So if you take your revenue less your cogs less your operating expenses you will get to your profit number.

Cash Flow Statement

Ok, so your cash is driven by profitability. If your Company is producing a profit on its Profit and Loss Statement you are generating cash flow.

The cash flow statement shows all the sources and uses of cash.

As for sources, we simply mean where your cash is coming from. As for uses, we simply mean where your cash is going.

This is a great statement to help you get a handle on how much cash you burned through in a particular month and where it went.

General thoughts on financial statements

Ok, here are some general thoughts on financial statements in bullet form.

These should be produced timely. Typically within 30 days of the end of the month.
These need to be accurate. You need good financial statements to make good decisions.
To get to accuracy you need the right person producing them. Make sure the team member has the right level of experience.
If you are doing $1M or more in revenue, you should consider accrual accounting. It paints a more realistic picture of profitability.
Reflect on these and seek to understand what they are telling you about the business.

In the next session, we will get into ways to understand the financial statements. It requires a pause at month end to really deep dive into them to pull out the “golden nuggets”.

We did write a detailed post on these financial statements here if you want to dive deeper.

5 Ways to Understand Your Financial Statements

We are pretty sure there are more than 5 ways to understand your financial statements.

However, we will cover 5 which should help you better understand how your business is performing.

Let’s take each financial statement one at a time and try to glean some wisdom out of them.

Balance Sheet

The balance sheet of your business will help you to understand the following:

The degree of working capital in the business. Working capital is the business’s ability to meet short-term obligations with current assets. It is an indicator of the business’s ability to collect on receivables, manage inventory well, and leverage accounts payable terms.

For example, Amazon has $100 in current assets and $50 in current liabilities. The working capital for Amazon is $50 ($100-$50).

On the other hand, Facebook has $75 in current assets and $70 in current liabilities. The working capital for Facebook is $5 ($75-$70).

Amazon wins. The higher the working capital, the healthier the business as there is more of a cushion to meet the current needs of the business.

The receivable turnover of the business will help you understand how quickly you are converting accounts receivable to cash. Cash is king, so the faster the better.

For example, Amazon has $500 in net sales and $100 in average receivables. The receivable turnover for Amazon is 5 ($500/$100).

On the other hand, Facebook has $500 in net sales and $50 in average receivables. The receivable turnover for Facebook is 10 ($500/$50).

Facebook wins. The higher the ratio, the healthier the business as cash is coming into the business quicker and the Company is managing collections better.

Profit and Loss

The profit and loss statement of your business will help you to understand the following:

The Gross profit % of the business will help you understand how much profit you earned on the sale of your products or services.

For example, Amazon has $500 in net sales and $100 in Cogs. The gross profit for Amazon is 80%($500-$100=$400 then $400/$500=80%).

On the other hand, Facebook has $500 in net sales and $50 Cogs. The gross profit for Facebook is 90% ($500-$50=$450 then $450/$500=90%).

Facebook wins again. The higher the percentage, the more money is earned on the product sales. It states that for every $1 of revenue that Facebook earns, they get to keep $.90 for profit.

The Net profit % of the business will help you understand how much profit you earned on everything. This includes your fixed expenses.

For example, Amazon has $500 in net sales,$100 in Cogs, and $20 in Op X. The net profit for Amazon is 76%($500-$100-$20=$380 then $380/$500=76%).

On the other hand, Facebook has $500 in net sales, $50 Cogs, and $5 in Op X. The net profit for Facebook is 89% ($500-$50-5=$445 then $445/$500=89%).

Facebook wins again. The higher the percentage, the more money is earned overall in the business. It states that for every $1 of revenue that Facebook earns, they get to keep $.89 for profit.

Cash Flow Statement

The Cash burn rate of the business will help you understand the rate at which your business spends money and the number of months of cash you have available.

For example, Amazon has $100 in cash and spends $50 per month. The burn of 50 per month results in 2 months of runway. ($100/50).

On the other hand, Facebook has $200 in cash and spends $30 per month. The burn of 30 per month results in 6 months of runway. ($200/30).

Facebook wins again. The more months of cash flow the more the business can be supported longer.

Summary of understanding your financial statements

Based on utilizing the financial statements, we were able to understand things like liquidity, profitability, and even cash reserves.

These metrics, driven by the financial statements, help us to better understand how the business is performing.

The beauty of using the financials and these metrics is you can track and compare against yourself to see your improvement. You can even compare yourself against your competitors, industry averages, or your future goals.

No matter what, your financial statements are a great source of helping you understand the financial condition of your business.

And the better the financial condition, the higher the probability of your being able to have the resources to meet your goals and vision.

3 Key Takeaways

At New Economy, we want to help you gain control of your finances to make smart decisions. Part of that is understanding your finances and how to drive business performance.

Here are 3 key takeaways.

Make sure you are getting accurate financial statements within a 30-day period after the month’s end. If you are not sure if your financial statements are accurate, reach out and we can provide you with some feedback.
Take the time to reflect on your financial statements. Determine what they are telling you about the financial condition of your business. Continue to monitor your progress against the historical financial statements and benchmark against competitors.
Do the work. Meaning, if your financial condition is not good or has deteriorated, determine what is driving that and fix it. Go into the business and spend the time getting to the root cause of the issue. The financial statements are just the indicator of something either being on or off track.

There you have it 🙂

New Economy Team Members are Experts in Accounting for Entrepreneurs

We’ll help you get your accounting and taxes done, and done right.

Schedule a time to meet with our Founder, Jeff, and discuss how we can add value to your situation.

5 Financial Levers to Increase Cash and Profits in Your Growth Stage Business

August 1, 2023/in Finance, Uncategorized/by Jeff Allain

As a growth-stage entrepreneur, you’re constantly thinking about ways to increase cash and profits in your Company. The more profitable you are, the more cash you can invest in people and strategies to support your growth.

Sounds simple, right?

At New Economy, we’ve used some of these tactics ourselves to grow our revenue from $0 to $2M with a gross profit margin of 50% and net profit of 15%.

And we want to help you gain control of your finances to make smart decisions to build and grow your Company.

In this article, you will learn about:

7 key financial levers to increase cash and profits and the impact
Top 3 takeaways

Let’s dive in.

What are the 5 Key Financial Drivers to Increase Cash and Profits?

First off, every business is unique and things vary from industry to industry. However, we believe that there are 5 drivers that each business should focus on.

Here they are:

1. The first driver is Price. Certainly, we all know what price is defined as. It is what we are charging our customers for our goods and services.

At New Economy, we are being innovative on the pricing front. For instance, we are focused on what we call value-based pricing. We are not thinking about rate and time but more about the value we are producing for our customers. This requires a deep understanding of the customer’s needs, wants, challenges, and goals. From there the goal is to add value to help them meet their goals, remove obstacles, and provide for needs and wants.

For example, as it relates to achieving goals, it might take us 15 minutes to come up with a solution that will save a customer $50,000 which increases their net profit. We believe the value of that is worth much more than the time that we put into it. So if priced hourly, we would price the service out at $37.50 (15 min x $150) versus pricing it out based on the value, which would be more of an art and say $2,500. Would you pay $2,500 to save $50,000? I know I would.

Here are a few quick questions for you relating to price.

Do you have a process for increasing your prices?
When was the last time you increased your price?
How are you determining your price?
Is your price truly representative of the value you are adding to the marketplace?

2. The second driver is Volume. This is the number of units, services, or hours that you are providing to your customers. Getting back to knowing your customer, is there an opportunity to continue to support their group by adding more of what you do?

We have a customer that installs accessibility equipment in people’s homes to help them age in place safely – a noble mission. They have a contract in place with Veterans Affairs (VA) in several states. Through understanding some of the VA’s challenges, they learned that the VA had veterans from other states in need. The customer then helped to support the VA and its veterans by expanding its geographical footprint. This ultimately led to installing more units, thus increasing the volume which drove up revenue. And as we know, increasing revenue can increase profitability.

3 Key Takeaways Related to Increasing Your Cash Flow and Profitability

If you want to build and grow your business, you need to make sure you are focusing on its data components. This will provide assurance that you are maximizing your profits, ultimately increasing your cash flow.

Here are three key takeaways:

Make sure you have someone get into the weeds and understand the impact of the above-mentioned levers. In fact, we suggest completely delegating ownership of this to a capable person like a fractional controller. Functions like this will be in their sweet spot and they can take ownership of helping you to move the needle here (Refer to our blog on fractional controllers).
Expect a positive return on implementing these exercises. We believe that expectations should be created and then you should drive toward those results. We suggest recalibrating your weekly scorecard with new goals and aligning your work to produce the results. Further, consider updating your financial projections based on the revised goals and the levers you are pulling (refer to our blog on financial projections).
Lastly, start slow and go deep. Select one of these areas and have your team spend 90 days working on it. Take the time to see if your revised goals are accurate and if not, understand why. Once you have mastered one of the techniques and achieved the results you are looking for, only then move on to the next lever.

New Economy Team Members are Experts in Accounting for Entrepreneurs

If identifying ways to increase your cash or profitability is not in your skill set or you want to gain control of your finances to make smart decisions to build and grow your business, New Economy is an excellent partner.

We’ll help you get your accounting done, and done right.

Schedule a time to meet with our Founder, Jeff, and discuss how we can add value to your situation.

Leveraging 3 Key Growth Startup and Small Business Financial Statements to Achieve Your Goals

June 19, 2023/in Entrepreneur, Finance/by Jeff Allain

In this article you will learn:

What are the 3 key financial statements
How to produce the 3 key financial statements
Why they are important
The top 3 ways to leverage the financial statements to achieve your goals

Why Do Growth Startup and Small Business Financial Statements Matter?

Let’s start with some statistics from the SBA.

66% of businesses with employees will fail in the first 2 years
50% of small businesses with employees will fail by the 5-year mark
70% of small businesses with employees will fail by the 10-year mark

But why is this?

82% experienced cash flow problems
42% experienced a lack of market for the product or service
29% ran out of cash
23% did not have the right team and place
19% were outcompeted

Yikes, these stats are staggering and a bit scary. However, we believe that good financial statements will help you make smart decisions to build and grow your business.

Before we move on, check out our several other blogs which address cash flow and team building here. They might give you some peace of mind.

What are the 3 Key Growth Startup and Small Business Financial Statements?

The 3 key financial statements are the balance sheet, the income statement, and the cash flow statement.

These financial statements should be provided in a timely manner (we recommend the 15th of the month for the previous month). It’s also important that they are accurate so we can use them to access the financial health of the business.

Here is a summary of each statement:

Balance Sheet

The Balance Sheet is a summary of the business at any point in time. It is a statement that shows all of the company’s:

Assets (cash & payable receivables)
Liabilities (debt & accounts payable)
Shareholders’ equity

This financial statement assists the reader with determining things like the company’s ability to meet its debt obligations, the cash reserves in place, or amounts owed to the company in the future.

Income Statement

The Income Statement is a statement that shows the profitability of a business over a period of time. It entails all revenue generated by the business, less direct costs, less operations expenses to determine net income or loss.

This financial statement assists the reader in determining things like gross profit, net profit, and even certain marketing expenses needed to support revenue generation.

Cash Flow Statement

The Cash Flow Statement tracks the sources and uses of cash over a period of time.

This financial statement assists the reader in determining where the cash went, such as paying down debt or having it tied up in accounts receivable.

How Are These Financial Statements Produced?

There are a few things that come into play to produce the financial statement. We believe the keys are:

People
Process
Technology

People

In terms of people, you want to make sure you have the right people in the right seats. Typically, a bookkeeper or accountant does some of the tactical work to start the foundation of producing these financial statements. They will focus on the categorization of expenses, the reconciliation of the bank account, credit card account, and all other basic accounts.

Then a controller-level person would step in to work on some of the more complex parts of the financial statement like revenue recognition and properly matching up revenue and expenses which is important to have a clear and accurate financial picture of the business.

Note: Use this article to help you spot the difference between an accountant, controller, and CFO.

Process

As for the process, it is key to getting the desired outcome month over month; from doing the basic categorization all the way to the month-end close. These processes should be documented and examined for efficiency.

This will ensure consistency and accuracy in the production of the financial statements and plays an important role in the delivery of timely and accurate financial statements.

Technology

As it relates to technology, these financial statements are typically produced automatically in accounting software like QuickBooks Online or Xero.

Note, there is a bunch of work that goes into producing these financial statements, even though they are automatically generated, which is why people and processes are important. However, the overall technology is pretty powerful and inexpensive.

Why Are These 3 Key Financial Statements Important?

We believe they will help you to become a stand-out instead of a statistic. The above-mentioned failure rates are scary and staggering.

But fear not.

We believe that these financial statements, and gaining control of them, will help you to make smart decisions to build and grow your business. So no more running the business based on your gut. You will have actual data to support decisions around “Can we afford to hire?” or “Should we invest in this marketing campaign?”.

We have helped many entrepreneurs. No more confusion. No more sleepless nights. Just peace of mind by leveraging these 3 key financial statements.

Top 3 Ways to Leverage the Financial Statements to Achieve Your Goals

1/ Compare your monthly profit and loss statement to your budget.

This budget versus actual analysis will help you to determine if you are on track or off track with your annual financial goals. The good news is that if you are off track you know early on and you can create a plan to get things back on track.

2/ Review your monthly balance sheet over a period of time for trend analysis.

Specifically the cash account. Set a goal around building up your cash reserves to cover a few months of expenses like payroll. Then each month review the cash balance to ensure that the cash balance is increasing month over month to support your financial goal of building cash reserves.

3/ Review your monthly profit and loss and drill down on the actual gross profit percent.

This is the profit you are making on the goods or services you are selling. Consider creating the ideal gross profit percent and create a plan like increasing prices or negotiating supplier costs to reduce costs and watch this gross profit increase over time.

Achieve Your Goals with New Economy CPA

Mining value from your financial statements can help you achieve your goals.

At New Economy, we help entrepreneurs gain control of their finances and make smart decisions by producing and analyzing the information provided in the three key financial statements.

With our help, you’ll have financial peace of mind.

We hope this article helped you better understand the three key financial statements, but we don’t want to leave you empty-handed. Try out this free Cash Flow Projection Tool for help managing your cash flow.

Tag Archive for: finance

Leading with Curiosity

5 Whys Example

Question 1: How’s My Cash Flow?

Question 2: Am I Profitable? (And If Not, Why?)

Question 3: How’s My Debt Situation?

Question 4: Am I Saving Enough?

Question 5: What Does My Future Look Like?

3 Key Takeaways:

New Economy Team Members are Experts in Accounting for Entrepreneurs

Strategy 1: Uncover Untapped Revenue Opportunities

Strategy 2: Turn Forecasts Into Cash Flow

Strategy 3: Reduce Waste and Streamline Operations – Plugging the Leaks in Your Ship

3 Key Takeaways

New Economy Team Members are Experts in Accounting for Entrepreneurs

Reason 2: Navigate Challenges and Opportunities Proactively

Reason 3: Gain a Competitive Edge and Secure Funding

3 Key Takeaways

New Economy Team Members are Experts in Accounting for Entrepreneurs

The three standard financial statements

Balance Sheet

Profit and Loss Statement

Cash Flow Statement

General thoughts on financial statements

Balance Sheet

Profit and Loss

Cash Flow Statement

Summary of understanding your financial statements

3 Key Takeaways

New Economy Team Members are Experts in Accounting for Entrepreneurs

What are the 5 Key Financial Drivers to Increase Cash and Profits?

3 Key Takeaways Related to Increasing Your Cash Flow and Profitability

If you want to build and grow your business, you need to make sure you are focusing on its data components. This will provide assurance that you are maximizing your profits, ultimately increasing your cash flow.

New Economy Team Members are Experts in Accounting for Entrepreneurs

Why Do Growth Startup and Small Business Financial Statements Matter?

What are the 3 Key Growth Startup and Small Business Financial Statements?

Balance Sheet

Income Statement

Cash Flow Statement

How Are These Financial Statements Produced?

People

Process

Technology

Why Are These 3 Key Financial Statements Important?

Top 3 Ways to Leverage the Financial Statements to Achieve Your Goals

Achieve Your Goals with New Economy CPA

CONTACT US

CONTACT US

Grow your business by leveraging your financial data. We’ll show you how.