• What I look for right now on my Financial Statements

    When I look at the statements for my bookkeeping company every month, I’m looking for several things:

    • Did I make a profit? In a service business, you should pretty much expect to make a profit from the get go.
    • What’s my gross margin*? For a service business, I like to see between 40-60%.  Some business like grocery may have a margin of 3% – 0.03 of every dollar goes to pay for the store, the staff, advertising etc.  They need volume.
    • Is my overhead steady month to month? I’m keeping an eye on expense creep.  I’m also making sure we aren’t trying to shrink our way to greatness.
    • Are my receivables reasonable? This will be on my balance sheet.
    • How much do I owe in the short term for payables and taxes?  I rigorously maintain a cash flow spreadsheet.  I want to plug in the numbers as soon as I know them.  I’ve been in business long enough to know approximately how much is coming in and how much is going out. I may not know the particulars for the month after next, but I have a pretty good idea about how it will play.

    Gross margin is second for me right now because I’ve hired 2 people at once, both with more experience (and more pay) than I’m used to.  I want to pay them well and I need to continue to make a profit, so I’m watching this number carefully.

    *Gross Margin is the percentage of every dollar of sales left after paying Cost of Goods Sold.

    There are 2 kinds of expenses in your business: selling/production (aka Cost of Goods Sold) and overhead.  The Selling/production expenses are what it costs you to produce and sell each unit.  You should be able to make a direct link from the cost to a particular sale.

    That’s what I look for now.  Sometimes I’ll follow other numbers depending upon what is important at the time.   What numbers are important in your business?

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One Responseso far.

  1. Very informative article. I’m really amazed by the quality of your blog.