I thought instead of telling you what I think in this blog post, I would just ask some questions to provoke some thought. I think you’ll likely know what I think by reading the questions I ask. Are you running your business, or is your business running you?
Do you control the expenses in your business by operating from a budget, or do you operate “seat of the pants”?
Do you have processes in place (and documented) for internal job functions, or do you assume everyone knows what they are supposed to be doing?
You know that everyone in your organization has certain responsibilities. Have they been clearly communicated, and do the people in your organization know they have these responsibilities?
Do you know the true cost of items that you produce or buy for resale, including indirect costs?
Do you know your most profitable items and those items that are not so profitable and maybe should be discontinued?
Do you know your businesses key financial ratios, what they mean, and where the danger levels are?
Do you analyze the return on new asset purchases before the purchase has been made?
If you think you have good answers to all of these questions, good for you. I challenge you to continually ask these questions throughout the year, and improve operations through better management.
At Red Wing Software, we evaluate our position and try to answer these questions regularly. We feel that once we think we know all the answers, we stop improving.
(Continued from the previous post) Using business ratios can help you analyze the financial health of your business. You can use ratios to help compare your business against other businesses similar to yours, and to see how yours compares to the industry averages. By comparing your business, you can identify trends and make changes accordingly. Here is Part 2 of the components of ratio tracking, what they mean, and how they can help your business.
- Inventory Turnover: This ratio measures how quickly inventory sold. A higher number generally indicates efficiency. However, companies must be careful of stock-outs in situations where too little inventory is kept on hand.
- Net Profit Margin: Measures the profitability in terms of return per dollar of net profit.
- Quick Ratio: This ratio is often used to evaluate a company’s immediate liquidity position. A quick ratio that is too low indicates greater risk for creditors and investors.
- Return on Assets: This is often used as an overall index of profitability. The higher the value, the more profitable your business.
- Return on Equity: This ratio measures the rate of return on money invested in the company by the owners. The higher the value, the more profitable your business.
- Working Capital: Because it is a dollar amount, this measurement is difficult to compare with other similar businesses, since you must also take into consideration the size of the business. However, it is a measure of the amount of funds available to purchase inputs and inventory items after the sale of current assets and payment of all current liabilities.
Use business ratio analysis to reveal trends and understand where improvement is needed in your business. Use ratios to make comparisons, understand your business, and stay ahead of your competitors.
Using business ratios can help you analyze the financial health of your business. You can use ratios to help compare your business against other businesses similar to yours, and to see how yours compares to the industry averages. By comparing your business, you can identify trends and make changes accordingly. Here are some of the components of ratio tracking, what they mean, and how they can help your business.
- Accounts Receivable Turnover: This ratio measures the promptness of customer payments. Higher numbers indicate the effectiveness of collection policies and procedures.
- Current Ratio: This ratio gives an indication of a company’s short-term debt paying ability. The higher the ratio, the greater the liquidity.
- Equity to Asset: A measure of financial position, this ratio measures the proportion of total assets financed by the owner’s equity. A higher ratio indicates better protection to company creditors, since more capital has been supplied by the owners and less by the creditors.
- Debt to Equity: Measures the extent the company is financed with money borrowed from non-owners. The higher the value of the ratio, the more total capital has been supplied by the creditors and less by the owners.
- Gross Profit Margin: This percentage measures profitability in terms of return per dollar of gross profit.
Stay tuned for the next post, which covers more ratios terms and what they mean!
Once a company grows into multiple entities, there are special challenges to face that were not present as a single company. There are ways you can keep these challenges under control, and one way is to use the features available within your accounting software. Here are some of the ways accounting software can help you manage multiple businesses.
Consolidated reporting.
When you own or manage multiple companies, you may want to look at the financial information of one company on its own, or have the option of combining the financials of several companies to look at together. Having the option to consolidate the financials of some or all companies can be extremely helpful for this reason. When you are able to get a financial picture of each business, you can make smart adjustments as necessary.
Multiple warehouse management.
While one company could possibly have more than one warehouse, it’s even more likely that multiple companies will. In this case, use a multiple warehouse management option within your accounting software’s inventory management system. Keeping track of your inventory by location is more efficient, since you can see with just a few clicks where your items are, and how many. This in turn helps you provide your customers with the products they need more quickly, too!
MICR Check Printing
Managing the accounting for more than one company means printing separate payroll and accounts payable checks for those companies. The problem of having to switch out the check paper each and every time can be solved by using the MICR check printing option. MICR check printing allows you to set up different check designs, and then print them with a special ink, onto blank check paper. It even allows you to print a signature on the check.
These are just a few of the accounting software features that can help you manage multiple companies! Learn more about your accounting software today to be sure you are using it to its fullest capacity, and you might be able to try to something new to streamline your processes.