Financial Statements To Know and Love 0

Yes, of course! I both love it and hate it when something somebody else says seems obvious to me, but only after they’ve said it.  That’s resonance for you. And maybe it’s envy too, as in why didn’t I say that? Either way, it’s worth sharing. For example, this quote:

Having a revenue goal isn’t enough. “Decide where you want to go and then build a plan,” John advises. “If you want revenues of $1 million next year, then break things down to understand what it will take to get there. How many units will you have to sell, or how many hours will you have to bill? And at what price?”

That’s Karen-Michelle Mirko quoting John Harmon in Financial Tools To Help You Grow Your Business on American Express OPEN Forum just last week. That’s under the heading “Break Down Your Plan.” And it’s excellent advice.

He goes on to recommend watching several key financial ratios:

  • Days of cash: how many days will available cash cover liabilities?
  • Days of inventory: How many days does it take to turn over inventory?
  • Gross profit margin: What percentage of money is left from sales after subtracting cost of goods?
  • Debt to equity: How well is debt being leveraged against capital invested by owners?

Reading financial statements was one of the basic building blocks of business school when I was there, and I find this a good reminder for every business owner. Your financials should work like a dashboard and control center. Learn to use them and they can become a powerful management tool.

(image: Business Plan Pro version 12)

About the Author Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry. Follow Tim on Google+ Read more »

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