What should you know about your company's finances?
No matter your profession, if you want to start or have a business, you must understand some basic concepts of your finances, to make the best decisions and get the best results in your company. With this, you will be able to maximize resources and generate more value to your business.
Here are some financial indicators that you should know:
Liquidity of your assets: What capacity do you have to pay your short-term debts? How fast can you turn your assets into cash? Many times companies have assets with which to meet their liabilities, but they are unable to meet their payments because they are not aware of the time it takes to obtain the necessary cash.
In terms of assets, there are current and non-current assets.
Current assets are those that are already in cash or can be converted into cash in the short term. While non-current assets are composed of real estate, goods, furniture for sale under specific conditions, obligations subject to term, among others. This condition makes it take time to convert them into cash. A good ratio between liquidity and debts will be fundamental to keep up with your commitments.
The Time Value of Money: We have all read about the increase of inflation worldwide, this circumstance affects especially the American market that has reached record inflation figures not seen in recent decades. What aspects should you analyze to measure this conjecture in your business? The present value or future value, this allows you to analyze the value of an asset or business in the future, as well as the value of that asset today.
Credit as a tool: Getting into debt? Surely you have heard the term "Leverage", which consists of asking for a loan to increase the cash flow with which your business can work. Many ventures start with a loan, you must have a good idea and make a previous study before acquiring a financial commitment. Additionally, you must consider the interest rate (which will allow you to know the cost of the loan, so you must calculate the loan payment installments and interest in your business plan).
Inventory Turnover: Many times we have a very good product, which sells with an excellent profit margin, but if it does not sell fast enough to cover your expenses or avoid losing the product (expiration or loss of market) it may not be the right one. The inventory turnover indicator tells us how many times the inventory is rotated in a specific period of time. With this indicator you can know how many days you sell your product, and even calculate that of your customers to have an estimate of the amount of orders you will receive.
For the calculation of all these indicators, it is essential that you have a control of the numbers of your company, not only the balance sheets but also details of the operations and activities within it. For this we recommend the use of an administrative system that suits your needs, as well as a team that can collect this data and empty it into the system.
Our team is in charge of accompanying companies both in the collection of this information, as well as the administration of accounting systems such as Quickbooks or Xero that help you compile the information and in some cases even provide these indicators.
If you want to know more about this topic, or you would like to have a support team for the administration and control of your business, you can write to us and we will gladly answer all your questions.