15760 Ventura Blvd, Suite 610 Encino, CA 91436
FREE CONSULTATION818-436-2775
15760 Ventura Blvd, Suite 610 Encino, CA 91436
FREE CONSULTATION818-436-2775
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Personal, Affordable Payroll Services, Bookkeeping, and Tax Processing for Small Business throughout Los Angeles County.

USING INFORMATION FROM YOUR FINANCIAL STATEMENTS TO MAKE MANAGERIAL DECISIONS

As a business owner, you need to pay close attention to your financial statements when making decisions for your business.

We promise we’re not just saying this because we’re tax professionals.

Essentially, if you’re not using your financial statements to make decisions within your business, then you’re flying blind. 

They provide tangible insight into the company’s revenue, expenses, “true” profitability (not just the balance in the bank account) and the company’s ability to meet its short-term and long-term obligations.

Ultimately, it paints an accurate, objective picture of the health of the business.

You’ll be able to determine things like whether your marketing efforts are paying off or if your business is in a solid position to make that next large purchase. 

If you’re like most small business owners, your eyes just skim over the financial statements and go straight to the net profit. It’s important to note that, although this line item is one to keep an eye on, it’s not the only one.

Let’s take baby steps, shall we…

Here are two things on your financial statements to start paying attention to:

Net Profit

Let’s start with the easy one. The Net Profit is generally what is “left over” once all expenses have been paid.

When making decisions, it’s best not to use the net profit but rather the net profit margin. This is the percentage that you get when you divide the revenue by the net profit. This number tells us whether the net profit is growing proportionately to the revenues. 

What does this mean? A business that increased its revenue by 50% could easily have their expenses disproportionately increase by 100%… washing out that increase in revenue or the majority of it. Keeping an eye on this is key to avoiding that.

SG&A – Selling, General and Administrative Expenses

SG&A expenses are costs associated with the business’ overall overhead. These are typically costs not directly related to the sales of goods/production/etc and includes expenses such as salaries of the owners and office staff, marketing activities, rent, utilities, etc. 

This is a category that can easily get out of hand and start eating away at your profitability.

For example, let’s say you sell a product for $20 that you purchased wholesale for $1. At first glance, it may seem like amazing profit margins but then you have to factor in costs like how much you spent on marketing, the salaries of the staff that provides the customer service for that product, and the warehouse to store the inventory. Not consistently keeping an eye on that line item can further reduce your profit margin and even put you in a situation where your overhead depletes your profit completely. We definitely don’t want that for you!

Although these two categories are not the end-all-be-all, paying attention to things like this is an important part of contributing to the success of your company and its finances. 

This is a good first step!

The next step (if you haven’t done so already) is to schedule a call with us and let us be your partner as you continue to grow your business. We’ll be sure to give you the guidance and clarification that you need.