This sounds simple of course, but you’d be surprised how difficult it is while doing so many different tasks to track the actual costs and profits of the business. Additionally, you have to be able to interpret the numbers and understand what they are telling you about the company in order for this information to be useful.
Profitability is the primary goal of most, if not all, business ventures. Without profitability, businesses generally will not be able to survive in the long-run. Therefore, measuring and understanding current and past profitability, and projecting future profitability is of the utmost importance for any business.
Depending on the industry you are in and the types of products and services you are delivering, gross and net margin analysis can get complicated. It sometimes appears that orders are steady and growing, but where is the cash? As part of any plan, you need to analyze (and properly categorize) your cost of goods or services and calculate your gross and net margins.
Armed with this information, you can analyze both how to optimize both as well as compare yourself with others in yours or similar industries (“industry comps”). This should be accompanied (as part of your overall financial model) by estimates of current and cumulative cash flow and helps you (and your finance team) make more informed decisions about growth and capital needs. Inventory and supply chain complexities; getting companies to pay (especially larger ones), and hidden costs (slotting fees, unreimbursed freight or travel) all can make calculation of where one stands financially and we’re you are going fairly robust. Few businesses allocate the time necessary to fully incorporate their financial plan with their accounting software, as this can take a fair bit of time and must be done on a regular basis.
TAP incorporates this discussion in our business plan analysis. It is a service we usually incorporate for our clients as part of TAP-Advise through our accounting professionals and analysts. TAP’s professionals are experts at rolling up our sleeves and assisting businesses with the development and upkeep of a comprehensive set of financial statements and analysis, including the income statement, the cash flow statement, the statement of owner equity and the financial performance measures required to carry-out comprehensive and ongoing financial analysis of your business. Proper understanding of and planning for financial outcomes can be the difference between long-term failure and success. To learn more about how TAP can assist you in the development of profitability analysis as well as arm you with the tools needed to extract meaningful information out of such an analysis, please reach out to us here.